The Trump Administration agreed on a trade deal with South Korea earlier this week, sending signals to some that there’s a way forward for trade. On Thursday, however, President Trump said he may hold up the agreement until a deal is reached with North Korea.
As part of his path to revamp America’s trade deals, Trump called for a review of the U.S.-Korea Free Trade Agreement (KORUS) last year after adding it to his list of “horrible” deals. Now negotiating parties have reached an agreement in principle on the general terms of the deal.
However, during remarks at an event addressing his infrastructure plan on Thursday, Trump said that he may put the FTA on pause.
“We’ve redone it, and it’s going to level the playing field on steel and cars and trucks coming into this country,” CNBC reported Trump as saying. “And I may hold it up until after a deal is made with North Korea. Does everybody understand that? You know why, right? Because it’s a very strong card, and I want to make sure everyone is treated fairly.”
Trump wants a deal with North Korea that would address the current nuclear crisis, in which the country doesn’t want to give up its arsenal, and could now hold up the already agreed on deal with South Korea.
The U.S. trade deficit with South Korea—which was $27.7 billion in 2016, according to the Office of the U.S. Trade Representative—has increased by as much as 70 percent since the agreement took effect in 2012, and elements of the new partnership are expected to chip away at that.
“The improved KORUS agreement reflects the President’s leadership in delivering more reciprocal trade outcomes benefiting U.S. workers, exporters, and businesses,” U.S. Trade Rep. Robert Lighthizer said in a statement. “The United States and Korea have strengthened an important economic relationship by agreeing to substantial improvements to KORUS that will help rebalance our trade, reduce our trade deficit, and expand U.S. export opportunities.”
Key changes to the trade partnership are focused in three parts: KORUS, currency adjustments and an agreement on steel.
The United States’ recently ordered tariffs on steel are intended to target an oversupply of the metal, coming largely from China, though neighboring Asian nations have contributed to the glut, too.
“Korea is part of the problem on steel,” Lighthizer said on CNBC’s Squawk Box. “They import a lot of Chinese steel and export a lot of steel to the United States.”
As such, South Korea will be exempt from the 25 percent tariffs the U.S. imposed on foreign steel imports, but will cut its steel shipments by 30 percent as part of a quota agreement.
On currency, negotiations are ongoing for an agreement that would prohibit devaluation for competitive purposes and any exchange rate manipulation.
Expanding on that further, trade law firm Sandler, Travis & Rosenberg said in a statement Thursday, “While USTR states that this agreement will include strong commitments on transparency and accountability, press sources note that it will not be subject to the FTA’s dispute settlement provisions.”
There have so far been no specific callouts for apparel and textiles in this amended agreement, but South Korea’s exports in the category have slid nearly 5 percent year-over-year, with totals in January down to $68.5 million.
The new U.S.-South Korea deal—whenever Trump decides to let it advance—will be an open-ended deal, as the North American Free Trade Agreement has been, though Lighthizer alluded to the sunset clause (which has been a point of contention in the ongoing NAFTA renegotiations) still being on the table. As far as NAFTA, the conversation has been about letting it auto-expire after five years unless the parties agree to continue it.
There is a clause in the KORUS deal that would allow Trump to get out of the agreement with 180 days advance notice if things weren’t working, Lighthizer explained.
“We will not do that with NAFTA,” he told CNBC. “And I would say it’s not part of the problem, but it’s part of the beauty of the improvement. We’re going to be in a position where we periodically look at if this is in everyone’s interest…everything tends to be term limited, sunsetted, and it’s something that allows people to evaluate and I think that’s a very positive thing.”