For months, President Trump has been suggesting he'd like to renegotiate — or outright cancel — the U.S.-South Korea trade deal. In April, he called the agreement “horrible” and a “one-way street.”
Now, my colleagues report he's instructed his team to draw up a plan for withdrawal. Although Trump's associates say he hasn't made up his mind, they indicate that the decision could come as early as this coming week.
How did the U.S.-South Korea deal come to be?
The trade agreement, signed in 2007, slashed tariffs on 95 percent of goods and strengthened intellectual-property protections.
It was celebrated as an “integral part” of the effort to boost opportunities for U.S. businesses and farmers. The U.S. International Trade Commission estimated that U.S. exports to South Korea would grow by $10 billion. The head of a U.S. manufacturing lobby said it would produce “jobs, jobs, jobs.” Negotiator Wendy Cutler called it “the highest-standard deal we have in force.”
Did it work?
Since the arrangement went into effect in 2012, the U.S. trade deficit with South Korea has more than doubled. (Last year, the United States sent $42.3 billion in goods to South Korea and imported $69.9 billion from the country, making South Korea our sixth-largest goods trading partner.) U.S. exports to South Korea fell by $3 billion between 2011 and 2016.
“As tariffs fell, American carmakers griped that South Korean regulators were erecting other barriers,” the Economist explained. “The South Korean government was accused of devaluing its currency for competitive advantage.”
Oof. So the agreement was bad for the United States?
On its face, that looks pretty bad. But experts say the deal isn't primarily to blame for the deficit. The U.S.-South Korea deal came into effect as trade was slowing around the world. “Without the deal, which slashed tariffs, American goods exports would have been even lower,” the Economist wrote. “American exports of services rose by almost 30 percent between 2011 and 2016. The stock of South Korean investment in America has more than doubled.”
And some U.S. industries have benefited tremendously. Beef exports to South Korea, for example, rose 152 percent between 2011 and 2017. U.S. service industries also have done well. In 2016, there was a $10.7 billion trade surplus, according to the Office of the U.S. Trade Representative. Additionally, Korean companies have invested $23 billion in the United States. That's more than in the previous 30 years, according to Business Insider.
How would withdrawing affect the United States?
Experts say that withdrawing completely would lead to big increases on the tariffs levied against products the United States imports from South Korea. That would mean that all kinds of everyday goods, from Samsung electronics to cellphones and automobiles, would get more expensive. South Korea would probably raise tariffs against U.S. products too, including agriculture products.
It would create diplomatic headaches too, isolating South Korea as tension with North Korea roils. Canceling the trade deal is “likely to strain diplomatic relationships,” Honglin Jian, a research analyst at Credit Suisse, wrote in a note.