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How Much Is the US-South Korea Alliance Worth?

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How Much Is the US-South Korea Alliance Worth?

If the Trump administration is going to insist on putting a dollar value on the costs of the alliance, it should also consider the gains in monetary terms.

How Much Is the US-South Korea Alliance Worth?
Credit: Official White House photo by Shealah Craighead

The Trump administration’s heightened emphasis on the cost of the U.S.-South Korea alliance is shaking the foundations of the security relationship. To best illustrate what is potentially at stake, this new approach should similarly be met with a shift in how the merits of the alliance are represented, namely by putting in dollar terms what may otherwise be taken for granted.

Washington’s demand for Seoul to increase military cost-sharing contributions by 400 percent has raised questions and concerns about the future of the alliance in South Korea. Renegotiations of the Special Measures Agreement (SMA) – outlining how much South Korea contributes to the non-personnel costs of hosting American troops – have taken place between the two allies every few years since 1991, but have never been as contentious as they have been under Trump. When the previous SMA was set to expire at the end of 2018, the United States initially asked for South Korea to double its 960 billion won ($840 million) contribution – quadruple the highest past increase in 2002. The two sides reached a compromise in February after the deadline, with South Korea agreeing to pay 8.2 percent more, but only in a one-year deal. Washington then revealed its new asking price of $4.7 billion this summer, which has been met with a public backlash in South Korea. The SMA negotiations, however, are not the only area in the alliance where the White House has stressed costs. Trump has questioned joint military exercises and even the presence of U.S. military forces in South Korea over expenses.

While South Korea’s situation is most often compared to other U.S. allies, there are also similarities with changes in how the United States now addresses a range of other global issue areas, such as trade and the environment. The new approach toward South Korea follows an overarching trend in U.S. foreign policy under Trump, principally “trading intangibles for tangibles.” In effect, the White House greatly underestimates the value of longstanding U.S. foreign policy norms, often leveraging them — and in doing so, undermining them — in favor of short-term economic gains. Though inherently more difficult to quantify, intangible aspects of U.S. foreign policy have much greater financial and economic value to the United States. Consequently, the Trump administration’s approach may actually challenge the U.S. financially, even in areas where the economy isn’t directly involved. Illustrating the shortcomings of this approach requires a process of “tangibilizing the intangibles.”

In the case of South Korea, Washington is putting its alliance credibility – consisting of deterrence against Pyongyang and assurance with Seoul – on the line, which is worth much more than the financial concessions it is seeking from Seoul. There are numerous benefits the United States receives from the alliance that are difficult to conclusively assign a dollar amount to. Below are some of the most important.

Benefit #1: Preventing the Return of Armed Conflict on the Korean Peninsula

Should deterrence against a North Korean attack collapse, resulting in war, the cost of war would represent the forgone benefits of credible deterrence. In effect, pre-existing cost estimates of a potential war on the peninsula serve as a proxy for what effective deterrence on the Korean Peninsula helps provide to Washington. From the review of existing estimates, a conservative assessment of the potential cost to the United States from a second Korean War is $2 trillion, and thus represents the lower bound of what effective deterrence from the alliance can be said to be saving Washington. Yet, the U.S. gets much more out of the relationship than preventing war, particularly given South Korea’s successful democratic transition, as well as its embrace of market principles and internationalism.

Benefit #2: Fostering Foreign Policy Convergence the Korean Peninsula

Security assurances from Washington have helped to foster convergence between the two allies in key foreign policy areas, namely policy toward North Korea and China. Regarding North Korea, constraint exercised by Seoul to adhere to international sanctions, represented by money that would otherwise be spent, is a tangible representation of additional leverage over North Korea gained by Washington. There are certainly factors at play other than U.S. security assurances, namely the threat of retaliatory sanctions from violating current UN sanctions, that have led Seoul to not break with Washington on North Korea policy. However, they are part of the larger risk of causing an outright break in the security alliance with Washington, which Seoul has repeatedly eschewed. In this light, under the Moon administration, South Korea has contributed at least $900 million toward building leverage over North Korea. Further, this figure would greatly increase if the international environment shifted to allow for economic engagement with North Korea.

On China, the Trump administration plans to spend billions in Asia to empower countries in the region to combat Chinese coercion. However, not only does South Korea — though still susceptible to Chinese pressure — not require such assistance from the United States, it has taken at least $25 billion in losses to its economy in order uphold the U.S.-supported status quo on the peninsula.

Benefit #3: Supporting Common Values in the Indo-Pacific

Moreover, though South Korea is reluctant to join U.S.-led initiatives in the Indo-Pacific for fear of provoking China, Seoul’s parallel engagement in the region amplifies Washington’s efforts, as it seeks to promote the same values. In the security realm, South Korea’s $12.5 billion of military hardware exports to the region since 2000 have helped to limit Chinese and Russian influence. The South Korean defense industry is also well suited to meet the needs of regional partners that may not be looking for the more advanced, higher cost technologies produced by the American defense industry. In the economic realm, South Korea’s at least $8 billion in official development assistance since democratization has worked toward the same ends as corresponding U.S. efforts, promoting the rules-based order without drawing from American coffers.

Putting everything on more equal terms reveals how the Trump administration’s cost-centric approach is risking tens of billions, if not trillions, of dollars in favor of the few billion increase it is seeking through SMA talks. There are innumerable other ways Washington could solicit greater financial contributions from Seoul without leveraging American credibility, but pursuing it any other way is not a risk worth taking.

This piece is adapted from a longer paper published by the Korea Economic Institute of America. The full-length paper can be viewed here.