Are we witnessing the end of KORUS?

By: | Issue #664 | at 10:00 AM | Channel(s): International Trade  

Trump would be advised to salvage whatever relationships he can in Asia.

Might President Donald Trump put an end to the Korea-US Free Trade Agreement? Raising this issue now may seem odd given the continuing strategic confrontation the United States and South Korea jointly face with North Korea, but then again not everything this administration does necessarily makes sense.

In fact, the connection between international trade and international relations appears to be lost on the President. On February 12, he reportedly told his cabinet that some countries, referring to South Korea in particular, among others, “are so-called allies but they are not allies on trade.” Trump then vowed to impose a “reciprocal tax” on goods from South Korea, China, and Japan, although White House staffers denied that any such formal plan was actually in the works. But if such a measure were to be enacted—and Trump could arguably act unilaterally on tariffs—it would effectively put an end to KORUS.

In September Trump slammed the South Korean government over its efforts at rapprochement with the north, contrary to Trump’s hard line against the rogue dictatorship, even as North Korea was busy detonating nuclear devices. Between differences in security policy and trade policy, it’s possible that Trump just doesn’t care very much about the U.S. relationship with South Korea. But neglecting that relationship would not be advisable.

U.S.- South Korea Trade Relations

In July, the U.S. Trade Representative called for special joint committee meetings under KORUS, the first of which took place on January 31 and February 1 in Seoul. Echoing the president’s threat to impose a reciprocal tax, USTR Robert Lighthizer said the purpose of the meeting was to “address our significant trade imbalance.”

Trade deficits are the focus of Trump’s global trade policy, although most economists agree that bilateral trade deficits are no way to measure the success of trade between two countries. But it is a simple concept for Trump to exploit, and likely finds resonance among his political base.

KORUS critics back Trump on that issue. “Our trade deficit with Korea has doubled in just five years, reaching $27 billion last year,” said Jeff Ferry, research director at the Coalition for a Prosperous America, a group that represents agricultural, manufacturing, and labor interests. “This disappointing result makes it clear that our trade agreement with Korea must be fundamentally revised or discarded.”

Upon conclusion of the joint meeting in early February, the USTR’s statement was rather vanilla, saying the U.S. pressed for resolution of concerns “that have hindered U.S. goods and services export growth and opportunities in Korea.” It sounds like not much was accomplished during this first round of KORUS talks. But the mild tone of Lighthizer’s statement stands in contrast to his severe criticism of positions taken by Mexico and Canada in the NAFTA talks, leading to the conclusion that a rupture in KORUS is probably not imminent. In fact, the USTR expects further talks to be scheduled.

Trump has repeatedly stated that he equates economic security with national security. But the President’s notion misses the big picture. Trump wants to enter into bilateral trading relationships in an effort to reduce the trade deficit, and his notion of bilateralism suggests that the U.S. can muscle its way to trade surpluses by dealing with one nation at a time. That power-based approach stands in contrast to the rules-based system of trade that emerged in the aftermath of World War II which the U.S. has championed ever since. By the way, no country has accepted Trump’s invitation to negotiate a new bilateral trade deal.

The Ghost of TPP Present

Meanwhile, the U.S. withdrew from the Trans-Pacific Partnership, NAFTA is in trouble, and the future of KORUS hangs in the balance. It’s also worth noting that South Korea was a member of TPP and continues to be involved in the eleven-member group that emerged in the wake of Trump’s withdrawal.

TPP, which was originally proposed during the George W. Bush administration and later championed by former President Barack Obama—a testament to what was once a bipartisan approach to international trade and world affairs—was a geopolitical instrument designed to contain the influence of an emerging China in the Asia-Pacific region. It would have cemented U.S. trading ties with the eleven TPP partners and allowed the Asian TPP members to diversify their economies in a way that was less dependent on China. All this would have contributed to US economic and national security, but it was all thrown away when Trump consigned TPP to the trash heap on one of his first days on the job.

Now there are strains over KORUS, all in the name of reducing the bilateral trade deficit. Commerce Secretary Wilbur Ross told an audience at the Atlantic Council in Washington in December that in his estimation, the US could and should be selling more cars and agricultural produce to the South Koreans.

The South Koreans have a broader view of the relationship and are worried that the collapse of KORUS will also mean the weakening of the U.S.-South Korea security alliance, pushing South Korea into China’s sphere of influence. The U.S. was once the bulwark against Chinese influence in Asia, but in the space of little more than a year since Trump took office, the U.S. has retreated from a leadership position and China has entered the vacuum to emerge as a regional and a global leader. So, there is a definite connection between economic security and national security, but it’s not quite the notion that Trump espouses.

Luckily, the remaining eleven TPP members have decided to continue without the U.S. This provides a framework for the U.S. to rejoin the organization if Trump ever comes to his senses on the issue—not likely—or further down the road, when the Trump era is over.

KORUS may seem like small potatoes when looking through a global lens, but it could emerge as an important stepping stone for the re-assertion of U.S. influence and trade in the Asia-Pacific. If the U.S. is ever to reclaim its leadership position in Asia, it had better maintain whatever relationships it can salvage.

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American Journal of Transportation

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Peter Buxbaum has been writing about international trade and transportation, as well as security, defense, technology, and foreign policy, for over 20 years. Besides contributing to the AJOT, Buxbaum's work has appeared in such leading publications as [em]Fortune, Forbes, Chief Executive, Computerworld, and Jane's Defence Weekly[/em]. He was educated at Columbia University.