Tag: KORUS

TPP Withdrawal Likely to Haunt Trump’s Asia Trip

President Trump’s arrival in Japan on November 5th will mark the start of a nine-day visit to Asia where trade and other economic issues, along with security concerns regarding North Korea, stand to figure prominently. Those hoping for the unveiling of any new bold trade initiatives, however, will almost surely find themselves disappointed. More probable is that the trip will serve as a bitter reminder of Trump’s ill-advised move only days after taking office to withdraw from the Trans-Pacific Partnership (TPP)—a decision whose reverberations are likely to be felt during many of his stops. The following is a closer look at some of the issues the president will likely encounter:

Japan: Had Trump used his political capital as a newly-elected president to push the TPP through a Republican-held Congress, his visit to Tokyo could have been an occasion to celebrate the agreement’s ratification in both countries (Japan has already done so). Instead, his trade discussions with Prime Minister Abe are likely to mirror those held between Vice President Pence and Deputy Prime Minister Aso last month, where Pence is said to have expressed “strong interest” in a U.S.-Japan bilateral trade deal while senior Japanese officials grumbled over U.S. withdrawal from the TPP. Given this disparity in views, it was no surprise when the two sides settled for a list of deliverables whose highlights included an agreement to lift U.S. restrictions on the import of Japanese persimmons and for Japan to allow imports of Idaho potatoes.

Like Pence, Trump may once again push for Japan to start negotiations on a bilateral free trade agreement. If so, it is doubtful he will receive the commitment he’s looking for, with Japan likely to prefer focusing on other aspects of a busy trade agenda which includes the finalizing of agreements with the TPP’s eleven remaining members and the European Union. Rather, any trade deliverables reached are likely to focus on more minor issues such as Japan’s decision in August to raise tariffs on imports of frozen beef from the United States and other countries from 38.5% to 50% as part of a “safeguard” mechanism to protect domestic farmers.

South Korea: Under a TPP passage scenario, Trump’s stop in Seoul could have been an opportunity to discuss South Korea’s accession to the agreement. Indeed, the country had previously made clear its interest in becoming the thirteenth TPP member, and the addition of the world’s eleventh-largest economy certainly would have increased the TPP’s benefits to its members. Instead, trade discussions between U.S. and South Korean officials are sure to center around a renegotiation of the U.S.-South Korea Free Trade Agreement (KORUS) demanded by President Trump which remains in its early stages. Indeed, just this week the renegotiation’s stakes were raised when South Korea’s trade minister is reported to have requested authority to terminate KORUS if he determines that the renegotiation’s result harm national interests.

It is worth pointing out that had Trump secured TPP ratification, South Korea’s accession could have served as a de facto renegotiation, thus eliminating what has become a noted sore point in bilateral ties. 

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Trump Advisers Are All Wrong about South Korea Trade Deal

The Wall Street Journal reports: “Mr. Trump’s nominee for U.S. Trade Representative singled out Mexico and South Korea during his Senate confirmation hearing as sparking American trade deficits. ‘In some cases, the rules don’t seem to be working as well as others,’ Robert Lighthizer said. Critics say the deal has led to a flood of South Korean cars, auto parts, memory chips, motors and pumps into the U.S., weighing on American competitors and jobs. A U.S. Trade Representative report this month said the pact… doubled the U.S. trade deficit in goods with South Korea.”

National Trade Council boss Peter Navarro has likewise claimed “We lost 100,000 jobs because of that South Korean deal. Our trade deficit has doubled, and, more importantly, 75 percent of the damage that has been caused by that deal has been to the auto industry itself, which, of course, is based in Michigan.”

Navarro, Lighthizer and the Journal’s unnamed critics are entirely wrong about the March 15, 2012 Korea/U.S. Free Trade Agreement (KORUS).  

KORUS could not possibly have “led to a flood of South Korean… memory chips, motors and pumps into the U.S.” because memory chips were already duty-free before that FTA, and so were motors (HS code 8501) and pumps (8413).

KORUS could not possibly explain the post-recession 2010-2015 rise in U.S. imports from South Korea because most U.S. tariffs were scheduled to be reduced from 2016 to 2021not from 2010 to 2015. 

KORUS had precisely zero effect on U.S. imports of Hyundai and Kia vehicles before 2016 because the U.S. tariff on Korean cars (HS code 8703) was 2.5% before KORUS and remained at 2.5% through 2015.  Ironically, when U.S. tariffs on autos and other products finally did come down in 2016, total U.S. imports from South Korea fell 2.6% (by $1.9 billion).

 The Korean tariff on imports of U.S. cars was cut from 8% in 2012 to 4% in 2015 and zero in 2016 and a 10% Korean tariff on U.S. trucks was eliminated.  Even before Korea cut its tariff on U.S. cars to zero in 2016, U.S. exports of cars to So. Korea tripled from $418 million in 2011 to $1.3 billion in 2015, according to the USTR.  Incidentally the USTR also notes that “Korea is currently our fifth-largest market for agricultural exports thanks to KORUS,” with farm exports up 208% from 2011 to 2015.