[ad_1]
President Donald Trump has just signed his first trade agreement.
At a meeting in New York on Monday, Trump and South Korean President Moon Jae-in signed a revised version of the Free Trade Agreement between the United States and Korea, known as KORUS.
To be clear, the agreement is not new – KORUS exists since 2012. But the new version removes some regulatory constraints imposed on US automakers for car export, expands US tariff by 25% on imported Korean trucks and restricts US car exports to South Korea that do not meet standards Korean security. that American builders were not close to achieving).
Six-year-old trade agreement has allowed both countries to sell more than $ 60 billion worth of cars, machinery and other goods with few restrictions, and South Korea is now the sixth largest trading partner the United States.
However, the Trump administration is unhappy that South Korea sells more to Americans than the US sells to South Koreans. Americans love South Korean cars and cheap steel. That's why the United States recorded a $ 27 billion trade deficit with South Korea in 2016, and Trump decided to renegotiate the trade deal to close the gap. But the new and improved KORUS is hardly revolutionary; it's basically the same agreement, with some minor modifications.
Under the new agreement, the United States has also agreed to exempt South Korea from its new 25% tariff on global steel. Instead, South Korea accepted a quota to limit steel exports to the United States to 70% of what it previously sold.
Apparently, the agreement appears to be a victory for the US auto industry, but many experts say it will not change the fact that South Koreans simply do not want to buy American cars. "It hardly seems like it will have an impact," says Simon Lester, commercial policy expert at the Cato Institute, a libertarian think tank. "I think [the Trump administration] need to declare a victory, to do something and sell it as a victory. "
The trade deal comes at a critical juncture in US-Korean diplomacy. The South Korean president is trying to negotiate a denuclearization agreement with North Korea and met with Trump on Monday to discuss at a bilateral meeting in New York. Moon wants Trump to declare peace with North Korea, but Trump has not made any public commitment to this after meeting Moon. Instead, he promised to meet Kim Jong Un and touted the new trade deal that Moon and him were going to sign. This is a report from the White House that says "it's very important". Moon has described it as "significant".
Trump wants South Koreans to buy more Chevys. Koreans prefer BMWs.
South Korea is one of America's closest allies, but it is also one of the fastest growing economies in the world.
When President George W. Bush began negotiating a free trade agreement with Seoul in 2006, the idea was to give US companies easy access to South Korea's growing consumer market. President Barack Obama continued negotiations and Congress ratified the covenant in 2011. It came into force a year later. Since then, KORUS has produced mixed results: the US trade deficit with South Korea has doubled. Some US industries developed and thrived under the agreement, but they further increased South Korean exports to America.
For example, US beef and dairy exports to Korea have skyrocketed under the initial pact (South Koreans are increasingly enjoying steaks, hamburgers and cheese pizzas). Consumers are also buying a lot of American fruit and companies are buying tons of American planes and electrical machinery. But Americans buy a lot, a lot more South Korean products, and they deposit a lot of money on South Korean cars.
In 2016, the deficit of US products with South Korea amounted to $ 27.7 billion. That sounds like a lot, but it's only a fraction of the US trade deficit with Japan ($ 69 billion) and China ($ 579 billion). The United States reported a small surplus in so-called "service exports", mainly from Korean tourism to the United States and Koreans, who paid tuition fees to US universities.
But the main factor of trade imbalance is related to car sales, and that's really bothering the Trump administration. In 2016, Americans imported $ 16 billion worth of Korean cars, about 10 times more than the $ 1.5 billion that South Koreans spent to import American cars. Experts in the auto industry say the reason is pretty simple: Americans love Hyundai and Kia cars much more than South Koreans like Chevys and Ford.
American automakers "do not really make cars that are popular there," said Lester of the Cato Institute. "I have not seen much effort to crack these markets."
But the Trump administration thinks it's because the trade deal is bad for America. He threatened to tear KORUS as soon as he arrived at the White House. And everyone panicked.
The new version of the trade agreement with South Korea is … basically the same
President Trump alarmed the world of US foreign policy by announcing in April 2017 that he was planning to abandon the free trade agreement with South Korea. He called it a "horrible agreement" that "destroyed" America.
It was the same rhetoric that he used to criticize the North American Free Trade Agreement on the grounds that it harmed the American manufacturing industry.
But the alarming part of his threats to end KORUS concerned less its impact on the US economy than its impact on national security. Many feared that Trump's speech would annoy one of America's most important allies in Asia, at a time when North Korea was multiplying the threat of nuclear attack.
Then, in September 2017, fears intensified when news came out that Trump had told his advisers to draft documents to pull out of the trade deal with Korea.
"South Korea has been an unwavering ally in the United States for 70 years. Now, North Korea is provoking and China is expanding its muscle-building power, "said Choi Seok-young, a Korean sales executive who helped write KORUS, in Washington. "We do not quite understand what Mr. Trump's main goal is to attack Korea by ending South Korea. [free trade agreement] at this critical moment. "
The tumult – plus Trump's ambitions for diplomacy in North Korea – seemed to soften his position. In January, the US Trade Representative, Robert Lighthizer, announced that he would renegotiate the agreement instead of withdrawing it.
A few months later, Lighthizer said the Seoul and Washington negotiators had reached an agreement. In summary, the Trump administration wants South Korea to buy more US cars and sell less steel in the United States.
The revised agreement removes some barriers to exporting for US automakers, such as the requirement to modify cars and auto parts to meet Korean emission standards and standards. # 39; labeling. All that remains for them is to comply with US emissions and labeling standards.
The new version also doubles the number of vehicles that every US auto company can export to South Korea without complying with Korean safety standards. The ceiling has been increased from 25,000 to 50,000 vehicles per year for each US car manufacturer. These cars must only meet US safety standards.
On the surface, raising this course is the biggest change at KORUS. But economists are skeptical that this will go a long way in boosting US car exports. American automakers do not reach the current limit of 25,000 each. Ford sold only 10,727 cars in South Korea in 2016 and Fiat Chrysler exported 7,284 cars.
"This is not the biggest problem in the United States, but it's a step in the right direction," said Jeff Ferry, research director at the Coalition for a Prosperous America, a group advocating trade policies. more protectionist.
Ferry, which supports the changes made to KORUS, said that a crucial part of the agreement was to extend the tariff of 25% on South Korean vans by 20 years. This so-called "chickens tax" was due to expire in 2021 and the American car manufacturers really wanted to maintain the tariff. Ferry said it helped keep South Korean companies away from the lucrative US pickup truck market, which is a huge money maker for Ford, General Motors and Chrysler.
Even if the new KORUS agreement seems to help American automakers, Trump's commercial policy is particularly damaging to automakers.
Trump's trade policies are really about helping American steelmakers
Trump's most controversial trade policy is to impose high tariffs on imported steel and aluminum. In March, the Commerce Department imposed a 25% duty on foreign steel and a 10% duty on foreign aluminum.
The tariffs were supposed to protect US steel producers from foreign competition in matters of national security. Stocks of US steel companies have since soared, but tariffs have also hurt countless US manufacturers who buy a lot of steel, including companies manufacturing washing machines and boats. They also hurt the industry that the administration is supposed to try to help: the US auto industry.
Rates are raising prices for US cars and auto exports are starting to decline. A report released in July by the Center for Automotive Research indicates that proposed new tariffs on imported auto parts could reduce auto sales by 2 million vehicles per year, resulting in the loss of 715,000 US jobs.
Nevertheless, the Trump administration seems very pleased with the results, and its new agreement with South Korea is a new impetus for the US steel industry. South Korea has agreed to reduce steel exports to the United States to 70% of its regular volume. In exchange, South Korea was exempted from the 25% tariff on US steel. In fact, KORUS is a victory for the American steel industry.
By giving Trump its first signed trade deal, South Korea is expecting something in return.
South Korea wants Trump to declare peace with North Korea
The president of South Korea led his political campaign by promising to restore ties with the communist North of the peninsula. To do this, Moon must involve the United States in peace talks and accept the denuclearization of Pyongyang.
So far, these efforts have been stalled, according to Alex Ward of Vox:
[North Korean dictator Kim Jong Un] wants Trump to sign a peace declaration – an agreement that says the Korean War is over and that America will never attack North Korea – before making nuclear concessions. Trump promised Kim he would do it soon after their June summit in Singapore.
The Trump administration, however, insists that Kim must first cut his nuclear arsenal into 60 to 70 percent – or offer another major concession – before the United States signs a peace declaration.
Moon used the trade agreement between the United States and South Korea as leverage in this effort. After Trump agreed to meet again with the North Korean dictator, he and Moon signed the agreement.
