by Michael Stumo, CEO of CPA
In 2012, you could be forgiven for believing that the US titanium industry would benefit from the South Korea-US (KORUS) free trade agreement that was implemented that year. Korea had virtually no titanium industry. Tariff rates for both countries would drop to zero. You easily could have concluded that the US titanium industry would increase exports to Korea without facing more import competition.
You would have been wrong.
Korea’s largest steel producer, POSCO, subsequently joint ventured with a Kazakh steel producer, UKTMP, to produce titanium ingots and slabs from UKTMP-provided raw material. Sales to the US skyrocketed. US sales to Korea did not. The story of KORUS is that Korea’s economic strategy was to grab more US market share without allowing increased US exports to Korea.
The story is similar in high tech. Samsung just surpassed Intel as the world's largest producer of semiconductors. Meanwhile, Samsung and LG have dumped clothes washers on the US market at below cost, been found liable, and then moved plants around the world to avoid the duties that remedy the dumping.
The Trump administration is considering withdrawing from KORUS, according to news reports. The data support pulling out, but globalists - who support economic growth in other countries but support only Wall Street and Silicon Valley growth here - are freaking out.
The case for pulling out of KORUS is stronger than the case for pulling out of NAFTA. First, Korea is a recidivist currency manipulator. It’s currency, the won, remained 14.4% 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 US 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% surge in Korean imports to the US while exports from the US to Korea flatlined. Clearly a failure.
Third, South Korea is eighth on the list of countries with which the US has a trade deficit. Mexico is third. However, the trade balance ratio with South Korea is much worse. In 2016, Korea sold 65% more goods to the US than it bought from us. Mexico sold us 28% 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 1960’s to developed economy-status not with free trade but with a hard-nosed industrial strategy. Mexico, like the US, operates in a laissez-faire manner, without a strategy. US trade performance is poor with countries that have nationalist industrial strategies and undervalued currencies. Trade agreements clear the way for strategic economies to sell more to US consumers.
When China joined the World Trade Organization in 2001, proponents in the US argued that China was making concessions and tariff cuts while the US was not. Thus America could win by accessing a market of more than one billion “consumers”. They were horribly wrong.
KORUS proponents similarly argued that South Korea would cut tariffs more than than the US, and therefore America would "win". Wrong again. Rather than admitting their error, globalists simply pushed for more trade deals with export-led Asian economies through the Trans-Pacific Partnership.
The data show that the modern free trade agreement era has been a mistake. The US continues on the short end of the global trade imbalance stick and is losing the international competition for good paying jobs. Of all the trade agreements past presidents have signed, the KORUS deal is the worst. It probably cannot be fixed.
If the US is to chart a new course on trade and growth, the KORUS free trade agreement should be the first to consider on putting on the chopping block. The US should then focus upon our two biggest trade problems: dollar overvaluation and the China deficit.
Michael Stumo is the CEO of the Coalition for a Prosperous America