In July of this year, the U.S. Trade Representative requested a session of meetings with the South Korean Trade Minister, where representatives from both countries could discuss renegotiating our free trade agreement.
President Donald Trump has made frequent remarks and speeches concerning what he perceives to be the bad trade deals the U.S. finds itself in, so this meeting between the U.S. and South Korea would fit with his rhetoric.
While I find fault with the President’s entire approach to our free trade agreements, I think it would be particularly dreadful to try and renegotiate the South Korean trade deal right now.
Former President George Bush first negotiated the free trade agreement between the U.S. and South Korea, more commonly known as KORUS, in 2007. It was updated in 2010 under former President Barack Obama.
According to Elena Holodny at Business Insider, the deal stipulates a rollback of tariffs for around 95 percent of goods within five years of implementation and enforces stronger intellectual property rights.
KORUS was fully implemented in March of 2012, and, per Holodny, was the biggest trade deal for the U.S. since NAFTA.
While it has only been in place for a little over five years, Trump assailed it as “unacceptable” and “horrible.” This fits in with much of Trump’s rhetoric on other U.S. free trade agreements.
To understand why it would be a mistake to try and renegotiate this deal, you should first consider it from an economic perspective.
According to Noah Smith at Bloomberg View, engaging in free trade with South Korea works quite differently than trade with other nations, especially China.
While we do not currently have a free trade agreement with China, it is the country most frequently cited as being a threat to America in the sphere of international trading. China and Korea are both countries in East Asia that frequently run trade surpluses with the U.S. and rely on exports of manufactured goods to sustain their economy.
One of the main reasons this situation is different is because the two countries export mostly capital-intensive goods to one another (i.e. machinery, aircraft and automobiles). This means both countries are able to simultaneously benefit from trade, because companies in both countries get another market into which they can sell goods and consumers in each nation have an increased number of products they can buy.
The other economic aspect brought up by Trump is the issue of U.S. trade deficits with South Korea. As I have already written an article on why trade deficits are an ineffective way to examine trade agreements, I will not delve into those details now. However, it is important to note while the U.S. does have a trade deficit with South Korea in manufactured goods, the U.S. holds a trade surplus in service exports.
Holodny noted in her article that for 2016, the U.S. maintained a 10.7 billion dollar surplus in service exports to South Korea. For these reasons, from an economic perspective, it would not be wise to try and renegotiate KORUS.
The other aspect to consider is the current political situation between America and North Korea. Unless you have hid under a rock for the past couple of months, it would be impossible not to know at least some details about the increased tensions between America and the threatening rogue state.
If America is serious about handling the increased tensions while avoiding any form of major nuclear incident, it is imperative we work closely with South Korea.
According to Christine Kim with Reuters, the South Korean government proposed military talks with North Korea over the summer in the hopes they could find a way to avoid a war on the Korean peninsula. It is far beyond the ability of this author to predict the outcome between these two countries, but it should be clear by now there is no solution to the North Korean issue that does not heavily involve South Korea as well.
When you look at both the economic benefits from the trade deal and the current sticky political situation on the Korean peninsula, it does not make sense for this administration to pursue a renegotiation of KORUS.
We need to work closely with the South Koreans in the immediate future, and the last thing the White House should want to do is to drag down our allies in trade discussions over a deal working quite well for both nations.