이 글을 한글로 읽기

The 2020 US Presidential Election is scheduled for Tuesday, November 3rd. With Senator Bernie Sanders (D-VT) ending his presidential candidacy early this past April, former Vice President Joe Biden is the sole remaining candidate and presumptive Democratic Presidential Nominee. Current Republican President Donald Trump initiated his campaign for a second term by filing with the FEC within a few hours of assuming the presidency. On June 18, 2019, Trump held an official campaign launch event at the Amway Center in Orlando, Florida.

In this issue of the KAGC Newsletter, we will be comparing Joe Biden and Donald Trump’s positions on U.S.-Korea trade, one of the Korean American policy priorities. We will also cover Biden and Trump’s positions on the U.S.-China trade war and its impacts on U.S.-Korea relations.

U.S. President Donald Trump and South Korean President Moon Jae-In participate in a signing ceremony for the United States-Korea Free Trade Agreement at the Lotte New York Palace hotel, Sept. 24, 2018. Photo by Yonhap/EPA-EFE

KORUS FTA Background 

The United States-Korea Free Trade Agreement (KORUS FTA) was ratified by the U.S. in October 2011, and by South Korea in November 2011, going into effect in March of 2012. The KORUS FTA is the second agreement the U.S. ratified with an Asian country after Singapore, and also the largest trade deal since the North American Free Trade Agreement (NAFTA) in 1993. According to the United States Trade Representative (USTR), South Korea is currently the US’s 6th largest trading partner, with $130.8 billion in total (two way), and was the 7th largest goods export market in 2017. Korea was the US’s 6th largest supplier of goods in 2017. U.S. top exports to Korea mainly consist of mineral fuels, whereas South Korean top exports to the U.S. mainly consist of vehicles.

According to the Korean International Trade Association (KITA), over the past five years (2012-2017), the free trade agreement has removed 95 percent of all tariffs between Korea and the U.S. The elimination of tariffs has caused two-way trade (exports plus imports) in goods and services between Korea and the United States to increase from $129 billion in 2011 to $145 billion in 2016. Two-way investment (inward plus outward stock) also increased from $48 billion in 2011 to $74 billion in 2015. Also, according to the Congressional Research Service (CRS), from 2011 to 2017, bilateral trade increased by 21%. U.S. imports increased by 25% for goods and 12% for services, while exports increased by 9% for goods and by 45% for services. The stock of U.S. foreign direct investment (FDI) to South Korea grew from $28.2 billion to $41.6 billion, while South Korean FDI in the United States grew from $19.9 billion to $51.2 billion.

Biden spoke about KORUS FTA in 2013, saying that “What we seek is an open, transparent economic order to deliver growth for all — because in growth resides peace.” He also said that “the way to sustain and enhance the region’s remarkable economic progress is not just to make sure it is physically secure, but to eliminate trade barriers,” listing this as one of the principles behind the Korean-U.S. Free Trade Agreement.”

When then-candidate Donald Trump first raised issues with the KORUS FTA in 2016, the U.S. had just seen its merchandise trade deficit with South Korea rise to a record of $28 billion. As a candidate, and later president, Trump emphasized U.S. job creation in the manufacturing sector and in reducing the U.S. trade deficit. Renegotiation took place in late 2017 to late March 2018, when an agreement was reached between both governments. President Trump signed a revised trade agreement in September of 2018.

The revised United States-Korea Trade Agreement includes steps to open up the South Korean market to increased American exports, most notably automobiles, and enabled the US to continue imposing a 25% tariff on South Korean trucks until 2041. [South Korean companies don’t export trucks to the U.S. yet so it doesn’t have a huge impact.] The trade deal excludes South Korea from steel tariffs, but not aluminum tariffs, in exchange for a South Korean cap on its exports to the US at 70% (2.68 million tons) of the average of its export levels (3.83 million tons) from 2015 through 2017.

Recent Trade Tendencies & Comparison of Trump and Biden

Since 2016, the trade landscape has shifted from Biden’s traditional vision of a rules-based, market opening, pro-free trade policy—a view that until the last presidential election had become the norm in both parties since the passage of NAFTA and the creation of the World Trade Organization in the mid-1990s. The Trump administration has reacted to that shift with a mix of managed trade, while resurrecting unilateral tariffs to generate leverage during negotiations. Meanwhile, the Democratic Party successfully shifted the trade debate over labor by driving the policies within the United States-Mexico-Canada Agreement (USMCA), which replaced NAFTA, and backing its subsequent passage.

One issue that requires attention is “Section 232” tariffs on imports of foreign-made cars and auto parts, especially considering that vehicles are the top Korean exports to the U.S. Under Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. §1862, as amended), lays out how a U.S. president can tax specific imports if the Department of Commerce deems them a threat to national security. Trump agreed with an administration study that some imported vehicles and components are “weakening our internal economy” and could harm national security, asserting to tax them by as much as 25%. The Trump administration launched its Section 232 probe of foreign autos in May 2018, but he took no action on Nov. 14, 2019, the final deadline established by the act to take action. Some experts say that because he missed the deadline “Section 232” can no longer be imposed.

Biden does not support using national security claims to impose tariffs. He argued that President Trump “imposed damaging and reckless tariffs” by designating imports from our allies as national security threats. We would not expect Biden to impose new Section 232 tariffs, but he has not officially provided his position.

Donald Trump

• Withdrew the U.S. from the Trans-Pacific Partnership (TPP), a 12-nation trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the U.S., which was signed, but not ratified, by the U.S. (it has not gone into effect)
• Renegotiated trade agreements with Mexico and Canada (NAFTA), blamed NAFTA for wiping out U.S. manufacturing jobs as it indirectly incentivized companies to move factories to Mexico due to the availability of cheaper labor
• Renegotiated the KORUS FTA 
• Announced a trade war with China and suggested in May 2020 that he could abandon his trade deal with China, signed less than four months prior, with great fanfare. This was largely grounded on China’s responsibility of COVID-19 and also China’s approval of the Hong Kong National Security Law
• Supported imposing additional tariffs– “America first” 

Joe Biden

• Emphasized addressing domestic concerns over trade: more investments in health care, infrastructure and education, increasing the minimum wage, and creating 10 million new jobs before entering any new trade agreements. This is a clear change in his trade policy. 
• Pledged that all future trade negotiations would include input from labor and environmental leaders—including a renegotiation of the TPP, saying that the U.S. wouldn’t rejoin TPP as it was initially put forward. 
• Committed to reducing trade barriers, but he has not directly addressed if this includes lifting tariffs imposed by President Trump, though he has made it clear that the costs have not been worth what President Trump has managed to extract from China thus far
• Opposed President Trump’s approach on China: China should be held accountable for their unfair trade practices, the U.S. needs a multilateral approach to negotiations with China, bringing in U.S. allies and international institutions as necessary, and international coalition building, as opposed to unilateral tariffs

Biden and Trump have fundamentally different trade policy objectives and views of the postwar international trade architecture. Biden appears to view trade rules as a useful tool in the U.S.’s arsenal, whereas Trump appears to largely see trade rules as constraints on U.S. action and that at times work against U.S. interests. Trump also views trade as a zero-sum transaction (in that one person’s gain is the other person’s loss) and has asserted that tariffs can be a net positive for the U.S.—manifested in his agenda to reduce the U.S. trade deficit.

For Biden, Trump’s focus on expanding or reducing the trade deficit with China misses the root issue at hand. Biden has asserted that the U.S. should be a rule-setter and work through multilateral coalitions to pressure bad actors. “The answer to this threat is more openness, not less: more friendships, more cooperation, more alliances, more democracy,” he said in Foreign Affairs.

Trump’s trade war with China may negatively impact the U.S.-Korea relations, since the U.S. imposition of high tariffs on China brings restrictions on Chinese imports and that would have a negative effect on Korean companies exporting intermediate goods to China. According to KITA, nearly 80% of Korean exports to China are intermediate goods.

Another concern is that China may demand that South Korea in essence choose either the U.S. or China as a major trading partner. Currently, China is South Korea’s largest export partner, in which South Korea exports $149 Billion, more than double its exports to the U.S. at $69.4 Billion. This is also concerning in light of China’s history of boycotting South Korean products following South Korea’s decision to deploy the Terminal High Altitude Area Defense (THAAD), an American anti-ballistic missile defense system. Although the decision was made in concert with the U.S. as a part of its alliance, the Chinese government has asserted that the defense system’s purpose is in actuality to spy on China. The boycott had a severe impact on large Korean companies, such as Lotte and Hyundai. Where the trade war may lead to is uncertain, but South Korea is stuck between the proverbial rock and a hard place, with a difficult pathway forward.