UDE The United States and South Korea Strike a Revised Trade Deal Questions

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CLOSING CASE The United States and South Korea Strike a Revised Trade Deal In 2012, a free trade deal between the United States and South Korea went into effect. In 2016, the United States exported $63.8 billion in goods and services to South Korea, and imported $80.8 billion, resulting in a trade deficit of $17 billion. During the U.S. election campaign in 2016, Donald Trump, who became President in 2017, called the deal "horrible” and a “job killer.” Given Trump's opposition to the free trade deal, it was no surprise when, in January 2018, the U.S. announced it was entering into negotiations with South Korea to revise the terms of the agreement. Complicating matters were two factors. First, in early March 2018, the Trump administration placed a 25 percent tariff on imports of steel. As the third-largest supplier of foreign steel to the United States, these tariffs threatened to harm the South Korean steel industry. Moreover, the global tariffs were technically in violation of the World Trade Organization treaty, to which both the United States and South Korea were signatories. Second, South Korea is an important U.S. ally. The country's support was crucial in putting pressure on North Korea to halt its nuclear weapons program. Given this, many observers wondered why the Trump administration was pressuring South Korea at a time when it needed to work together with the nation to keep North Korea in check. CHAOS ASIAN LEGEND NAMA Kim Jae-Hwan/AFP/Getty Images Perhaps because of geopolitical considerations, the negotiations proceeded very quickly. Trade in automobiles was central to the negotiations, because the Trump administration saw it as a primary cause of the trade deficit. In 2017, the United States imported nearly $16 billion worth of South Korean passenger cars, but exported only $1.5 billion worth to South Korea. Significant automobile production in the U.S. is concentrated in swing states such as Michigan and Ohio, which helped elect Trump to the presidency. In late March, the two countries announced they had reached a revised deal. Under the terms of this deal, South Korea would be exempt from the 25 percent tariff on steel imports into the United States. Instead, South Korea agreed to a quota that would limit its steel exports to the U.S. to about 70 percent of what they had been in 2017. In return, South Korea made two concessions. First, the deal extended for 20 years a 25 percent tariff on exports of South Korean light trucks to the United States (under the original agreement, the 25 percent tariff was set to expire in 2021). This will likely be a significant boon to U.S. auto manufactures, because the light truck segment is one that they dominate. Second, the Koreans agreed to lift their annual quota on imports of U.S. cars into the country from 25,000 per manufacturer to 50,000 per manufacturer. Beyond that, U.S. cars sold in South Korea would have to adhere to Korea's stringent safety and environmental standards, which the Trump administration has characterized as "burdensome regulations” designed to make it difficult for U.S. companies to sell vehicles in Korea. That being said, the reality is that U.S. auto companies were not even close to reaching the old quota limit of 25,000 cars a year, so lifting the cap may be primarily symbolic. The deal will also establish a side agreement between the United States and South Korea that is intended to deter "competitive devaluation" of both countries' currencies—which can artificially lower the cost of imports bought by consumers—and to create more transparency on issues of monetary policy. administration officials suggested that this new type of arrangement was likely to be replicated in other trade deals, though they acknowledged it was not enforceable. The deal allows President Trump to claim that his “get tough” approach to trade negotiations works. For their part, the South Koreans were reportedly pleased that they didn't have to give ground on opening up their agricultural industry to U.S. imports, where administrative tariff barriers have limited importation of some low-priced American foodstuffs such as rice and potatoes. Sources: Michael Shear and Alan Rappeport, “Trump Secures Trade Deal with South Korea Ahead of Nuclear Talks,” The New York Times, March 27, 2018; Scott Horsley, “Trump Administration Strikes Trade Deal with South Korea," NPR Politics, March 27, 2018; Patrick Gillespie, "New US Deal with South Korea: What You Need to Know," CNN Money, March 28, 2018 Page 228 Case Discussion Questions 1. Why do you think the Obama administration pursued a trade deal with Korea in 2012? What were the potential economic and political benefits? What were the potential costs? 2. Is there any evidence that the 2012 free trade deal between the United States and South Korea was a "job killer" as claimed by President Trump? 3. What were the motivations of the Trump administration in renegotiating the 2012 deal? 4. Who benefits from the revised (2018) deal? Who might lose? Does the 2018 deal represent an improvement over that ratified in 2012? 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The United States and South Korea Strike a Revised Trade Deal
Part 1
1. The US-Korean free trade deal of 2012, was the first trade deal between the United States
and an Asian economy over a significant export and import goods. Combined with the
consumers of Korea and the US, there lies a vast potential of a growing economy for the
future of steel and vehicle industries as a whole. Korea is one of the largest steel suppliers
in the US, while the American cars are one of the highly demanded goods around the
world and in Korea. The trade agreement ceased to provide benefits to both the
economies, economically and politically. For the US alone, the Obama administration
saw the potential in creating jobs, learning, and manufacturing units by the Koreans. The
agreement's downside was that it lessened the quota and tariffs, while the contract could
not be broken before five years with the same terms and conditions.
2. President Trump’s view is that the US can manufacture the goods it is currently
importing from Korea. The President claims the deal to be a job killer in the essence that
because the products are being imported, the US economy is not setting manufacturing
and production units for domestic production. As a result, people are not being employed.
His solution was for the American economy to start domestically producing those
products and utilizing the local labor to discourage importing Korean goods.
3. The most significant factor was that Korea was seen as an ally against North Korea, and
the US could not bear to be its enemy by harming its economy.

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4. In a way, both the nations benefit from the deal with the reliance on goods from both
countries. However, compared with the 2012 agreement, the 2018 value has been seen to
be reasonably lenient from the Korean side.
Part 2
1. I think this deal was more of a power display by the Trump administration to take control
as one of the world's largest economies. It is to be analyzed that even though the US has a
large economy and is a superpower, the Americans are highly dependent on imported
products and only conducts...

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