Strengthen, Don’t Sabotage, the U.S.-Korea Trade Deal

By: | at 05:00 PM | International Trade  

On leaving South Korea this week, U.S. Vice President Mike Pence offered a warning: A landmark free-trade deal between the two countries is now under review. Since the deal took effect, he said, the U.S. trade deficit with South Korea has more than doubled.This is a wrongheaded complaint, and an unfortunate article of faith among Donald Trump’s advisers.

The target of Pence’s criticism is the U.S.-Korea Free Trade Agreement, known as Korus, which took effect in 2012. It slashed tariffs on products ranging from cars to beef to aircraft parts, while strengthening protections for intellectual property, workers’ rights and the environment. It also opened the Korean services market to U.S. companies.

Although imperfect, the deal has been mutually beneficial. Trade between the two countries has expanded even as global trade has stalled. Exports from both have risen in manufacturing and services. Korean investment in the U.S. has surged. Disputes linger, but the pact established a sophisticated process for resolving them.

Admittedly, the U.S. trade deficit in goods with Korea has widened, from $16.6 billion in 2012 to $27.7 billion last year. But that had little to do with Korus. Korea’s economic growth slowed sharply as the deal began, and total imports declined accordingly. If anything, Korus has prevented the deficit from widening yet further by lowering barriers to American goods.

More to the point: Bilateral deficits aren’t indicative of economic malaise or bad deals, as Trump’s team often claims. They reflect the free choices of consumers and businesses, buyers and sellers, who are getting what they desire. There’s little the government could do to alter that dynamic if it wanted to—and it shouldn’t want to.

A focus on the deficit also obscures the larger context of this deal. South Korea is a linchpin of U.S. influence in Asia, and a crucial diplomatic and military partner. The two countries conduct more than $100 billion in trade each year. Korus has strengthened that relationship, while affirming the shared values of free markets and fair commerce. Its importance extends well beyond economics.

As with any trade relationship, of course, things could be improved. Pence was right that Korea still imposes some barriers on U.S. businesses. Automakers have valid complaints about excessive red tape, for one. Tech companies rightly vent about restrictions on data exports, which benefit local competitors. Concerns about currency manipulation are likely overblown but not unfounded; pressing Korean authorities for more transparency would be sensible.

If the Trump administration focuses on such remedies, it could eventually strengthen the arrangement to the benefit of both sides, while fulfilling Trump’s pledges to extract better deals from trade partners. If it focuses on reducing the bilateral deficit, it will get nowhere, and irritate a key ally in the process. The choice seems obvious. And yet.


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