The trade pact between South Korea and the United States has proven to be one of the most one-way global trade deals ever signed.
Just five years old, the South Korea-U.S. trade deal known as KORUS has led to a huge rise in imports from South Korea with no reciprocal rise in exports from the U.S. Prior to the deal, the U.S. exported around $43.6 billion in goods to South Korea, while South Korea sent around $56.6 billion, producing a trade deficit of around $13 billion. Last year, the U.S. exported $42.3 billion to South Korea and imported $69.9 billion from South Korea. The trade deficit was around $27.6 billion.
The rapid rise of the trade deficit with South Korea has caught even some trade hawks by surprise.
“When we started looking into this, we couldn’t believe it. It’s like NAFTA on crack,” one U.S. trade official said. He spoke on the condition of anonymity because he wasn’t authorized to compare the trade deal to crack cocaine.
The case for pulling out of KORUS was outlined in a recent op-ed by Michael Stumo, the CEO of the Coalition for a Prosperous America.
First, Korea is a recidivist currency manipulator. Its currency, the won, remained 14.4 percent undervalued in May, making Korean goods and services cheaper than they would be with a fairly priced won. Mexico’s currency, in contrast, is not undervalued.
Second, America’s trade performance under the KORUS agreement is the worst among all U.S. trade deals. Our pre-existing trade deficit with South Korea doubled in the first four years after the agreement was implemented. While tariffs were indeed cut, the result has been a 23 percent surge in Korean imports to the U.S. — while exports from the U.S. to Korea flatlined, clearly a failure.Third, South Korea is eighth on the list of countries with which the U.S. runs a trade deficit. Mexico is third. However, the trade-balance ratio with South Korea is much worse. In 2016, Korea sold 65 percent more goods to the U.S. than it bought from us. Mexico sold us just 28 percent more goods than it bought.
Fourth, South Korea operates its economy with an export-led, nationalist strategy to win. It grew from a poor country in the 1960s to developed-economy status, not with free trade, but with a hard-nosed industrial strategy. Mexico, like the U.S., operates in a laissez-faire manner, without a strategy. U.S. trade performance is poor with countries that have nationalist industrial strategies and undervalued currencies, and trade agreements clear the way for these strategic economies to sell more to U.S. consumers.
President Donald Trump has certainly noticed the imbalance. In recent weeks, Trump has sent out several tweets criticizing the South Korea trade deal and warning that the U.S. might pull out.