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Trump Wants To Overhaul Trade, And Pact With South Korea Is In His Sights

19 hours ago
Originally published on September 7, 2017 12:17 pm

President Trump won office promising to overturn the global trade system, which he assured voters was rigged against the United States.

And he was particularly unhappy with the five-year-old trade deal with South Korea. At the White House on June 30, he underscored that concern, saying, "The fact is that the United States has trade deficits with many, many countries and we cannot allow that to continue. And we'll start with South Korea right now."

That timetable may be slipping. Reuters says an unnamed senior administration official says plans for withdrawing from the deal may be set aside for a while as the White House deals with the growing tensions involving North Korea. The administration needs the assistance of South Korea to help resolve a crisis involving North Korea's nuclear and missile programs.

How long such a delay might last is far from clear, given how many times Trump has said the agreement was a bad deal for Americans, who are buying more and more products from South Korea.

That country's big companies, such as Hyundai, Samsung and Kia, sell many billions of dollars' worth of products to the U.S. each year and their cars, smartphones, dishwashers and television sets are common sights in American homes.

U.S. companies long complained that the trade was one-sided and it was difficult to sell in South Korea. The Korea-U.S. Free Trade Agreement, which took effect in 2012, was supposed to address that, by removing the many tariffs and other barriers that restricted trade.

Instead, the U.S. trade deficit with South Korea — the difference between what Americans buy from and sell to that country — has only widened since the agreement took effect.

"We were supposed to benefit from the deal. It didn't work out that way. At the end of the day, U.S. exports to Korea have fallen since the agreement took effect," says Rob Scott, senior economist and director of trade and manufacturing policy research at the left-leaning Economic Policy Institute.

Between 2012 and 2015, the trade deficit has more than doubled, to $28.3 billion, an increase Scott estimates has cost the U.S. some 90,000 jobs.

Why has that happened?

The past five years have seen steady growth in the U.S., and Americans have been buying a lot of cars and electronics, the very products that South Korean companies make a lot of.

"The main reason for America's trade deficit, whether it's with Mexico or Korea, is America's insatiable appetite for imports," said Sung Won Sohn, professor of economics at California State University, Channel Islands.

At the same time, the South Korean economy has been relatively lackluster and people in the country have been importing less, Sohn noted.

"Economic growth on both sides, in the United States and Korea, probably explains a lion's share of what happened to the trade deficit between the two countries," Sohn said.

While South Korean companies such as Hyundai and Kia increasingly manufacture products in the United States, they typically bring most of the parts they use to make them from home, which hasn't done a lot to narrow the trade gap.

To be sure, some U.S. exporters have benefited from the Korea agreement, such as farmers.

"Four years ago, [South Koreans] didn't import any soybean oil from the United States, and now it's up to 180,000 metric tons of soybean oil. So it's a huge increase in the opportunities for the soybean farmer," said Ron Moore, a farmer from Illinois who serves as president of the American Soybean Association.

Almost half of the soybeans consumed in South Korea are now grown by American farmers, Moore noted. Without foreign trade, prices for a lot of agricultural products would fall, he said.

Eliminating the Korea trade pact would also increase prices for the South Korean products Americans like to buy, such as Samsung phones, LG appliances and Hyundai cars, Sohn said.

Whether Trump will go that far remains to be seen. The president said over the weekend that he was ready to begin the process of withdrawing from the pact, which may have been a ploy to extract bargaining concessions from South Korea.

But then North Korea's decision to test a powerful nuclear device over the weekend may have once again increased political and diplomatic tensions on the Korean Peninsula. And that makes this an inopportune time to play hardball with America's South Korean ally.

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