The Koreas

What Trump’s ‘Trade Wars Are Good’ Approach Means for South Korea

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The Koreas

What Trump’s ‘Trade Wars Are Good’ Approach Means for South Korea

U.S. pressure on Seoul over trade issues undercuts the need for cooperation on North Korea policy.

What Trump’s ‘Trade Wars Are Good’ Approach Means for South Korea
Credit: Cheong Wa Dae

U.S. President Donald Trump campaigned on a platform of economic nationalism aimed at supposedly free-riding allies and unfair free trade deals. South Korea, among others, was a favorite target of his “America First” rhetoric. According to Trump, Seoul not only failed to properly shoulder the burden of its own defense but also benefited at the expense of the United States through a one-sided U.S.-Korea Free Trade Agreement (KORUS FTA).

Once in office, Trump wasted little time turning rhetoric into reality. Within days of his inauguration, and influenced by trade policy advisor Peter Navarro, Trump pulled the United States out of the 12-nation Trans-Pacific Partnership (TPP). Although the president did not follow Navarro’s advice at that time to impose tariffs on steel or pull out of NAFTA and the KORUS FTA, he did move to renegotiate both trade deals.

In July 2017, Trump directed the United States Trade Representative (USTR) Robert Lighthizer, to call for a special Joint Committee meeting under the KORUS FTA to renegotiate the deal in accord with the president’s “intention of reducing the trade deficit and giving Americans a better chance to succeed in global markets.”

Whether by conscious design or force of habit, Trump has employed the bare-knuckle tactics borne of his real estate background, exploiting any and all leverage he has over the other side; in this case, using South Korea’s dependence on the United States for its ultimate security to pressure Seoul into making concessions on trade.

The obvious problem: South Korea is not a hostile litigant in a court case, but a longtime, valued ally. The incongruity of calling for a unified front in the ongoing crisis with North Korea alongside such pressure on trade seems to be entirely lost on the White House.

Thus, in late January, with most coverage focused on inter-Korean talks in the lead up to the Winter Olympics, U.S. and South Korean trade representatives gathered for their second round of discussions on the KORUS FTA. Previously, they held a special session of the KORUS Joint Committee in 2017 and the first round of KORUS amendment and modification negotiations on January 5.

On January 22, a week before the second round of negotiations began, Trump slapped steep tariffs on U.S. imports of washing machines and solar energy cells and panels. The safeguards were directed at cheap imports from both China and South Korea, and met with harsh criticism from both.

Although welcomed and indeed pushed for by Whirlpool Inc., Samsung Electronic Co. and LG Electronics, some saw the move as a purely protectionist measure to shut out products American consumers found more attractive. In the case of Samsung, it could slow operations at their new appliance factory in South Carolina. Wendy Cutler, former deputy U.S. trade representative and chief U.S. representative when the KORUS FTA was signed in 2007, noted that the safeguards “could set a cloud over the negotiations.”

Indeed, they did. During the second round of talks, held in Seoul from January 31 to February 1, Yoo Myung-hee, the Trade Policy Bureau director-general and head of the South Korean team, reportedly expressed extreme displeasure, calling the Trump administration’s decision to apply safeguard “incomprehensible.” After the negotiations, South Korea Minister of Trade Kim Hyun-chong remarked: “There were very heated negotiations between the two sides. We were forceful in addressing the unfairness of the safeguards.” South Korean officials argued that such tariffs should be withdrawn or relaxed in light of the fact that the U.S. trade deficit with South Korea was actually decreasing on a year-by-year basis (from $23.25 billion in 2016 down to $17.97 billion in 2017.)

Automobiles and U.S. tariffs on steel are two additional issues that were discussed and could pose real difficulties for the negotiators moving forward. At the second round of KORUS talks, Assistant U.S. Trade Representative Michael Beeman called for the partial or total removal of nontariff barriers to market access for U.S.-made cars, including certain safety and environmental regulations, a stance reiterated by USTR Lighthizer after the meetings.

The implication is that if South Korea does not relax regulations, General Motors (GM) Korea’s factory in Gunsan will be closed or, in a “worst-case scenario,” according to South Korean Minister of Trade, Industry and Energy Paik Un-gyu, GM will withdraw from the Korean market entirely. Trump, citing the success of his America First policy, has stated GM is moving “back from Korea to Detroit.” GM publicly denied this.

In regard to steel, the South Korean side strongly opposed its inclusion in an imminent decision by the Trump administration to impose import tariffs on foreign steel. Although discussed during the second round, the issue gained additional traction following the February 16 release of a U.S. Commerce Department investigation into the impact of foreign steel and aluminum products on U.S. national security.

Trump’s announcement yesterday that next week he would formally sign an order imposing an across the board tariff of 25 percent on steel and 10 percent on aluminum now makes the threat and its consequences very real. Even before Trump’s move, Paik had stated: “Steel is sure to have a huge impact because it is connected with the KORUS FTA negotiations, too. We’re looking at the big picture on this.” The big picture in Seoul differs from that in Trump’s White House.

The recent Commerce Department report ran contrary to a similar 2011 study, which found no reason for imposing higher tariffs on steel on national security grounds. However, as Phil Eskeland at the Korea Economic Institute (KEI) writes: “the 2018 report vastly expands the definition of ‘national security’ to an all-encompassing general economic welfare interpretation that goes well beyond what most observers would truly consider items needed for national defense.”

In an effort to boost U.S. steel capacity, the report offered three recommendations, the second of which called for raising tariffs to at least 53 percent on steel imports from a dozen countries, including South Korea, and freezing imports from all others at 2017 levels. However, yesterday’s announcement by the Trump administration on the pending tariffs indicates it will follow the report’s first recommendation on steel and aluminum, imposing a global tariff “of at least 24 percent on all steel imports from all countries” and “a tariff of at least 7.7 percent on aluminum exports from all countries.”

Unsurprisingly, South Korean officials have consistently argued that as an American security ally, imports of South Korean steel do not have a negative impact on U.S. security. Trump’s decision, though, which was strongly pushed by advisers such as Navarro (a former steel industry lobbyist whose star is reportedly once again on the rise), groups South Korea alongside China — and every other country, for that matter. Distinctions, details, and longstanding relationships do not matter. America comes first and, Trump says, “Trade wars are good, and easy to win.”

The third round of KORUS negotiations are to be held in the very near future. However, with these various disagreements unsettled (and likely exacerbated by Trump’s recent moves) we will likely see severe consequences for and possibly the end of the KORUS FTA. The South Koreans have reacted accordingly, with Minister Paik stating that their “export strategy needs to change a great deal to combat Trump’s protectionism. We have to take steps to manage risk and open up new markets.”

Yet the issues involved and the Trump administration’s overall approach to the U.S.-South Korea relationship have implications beyond bilateral trade. How the United States can maintain Seoul’s involvement in its “maximum pressure” campaign against Pyongyang while simultaneously imposing unilateral and potentially increasing tariffs against South Korean products is anyone’s guess.

President Moon Jae-in has taken a less stringent line on North Korea, attempted to lessen tensions surrounding the Olympics, and aims to continue as a mediator between Seoul’s U.S. ally and North Korea. The South Koreans position as mediator is itself a tenuous one, considering the United States’ essentially unbending stance. In this context, for Trump to further scuttle bilateral trade relations and impose what appears to be an inconceivable tariff on South Korean steel makes it even more so. It could very well lead the already existing and real fissures between Washington and Seoul to break open in new and far more serious ways.