South Korea imports no more than 11,000 vehicles annually from any single American manufacturer. No one is anywhere near breaking their a quota of 25,000 per company. And the United States imports no pickup trucks at all from South Korea.
But President Trump’s new deal with South Korea doubles the quota for American auto imports and extends the tariff on pickup trucks for another 20 years.
If you’re confused by how this is supposed to be an improvement, you’re not alone.
And there’s more. The new limitations on steel will make it more expensive for U.S. manufacturers to import it from South Korea, our third largest source of steel imports. And the “groundbreaking” side-deal to prevent Seoul from devaluing its currency? It’s non-binding.
If this is a historic day in trade policy and “winning” by Trump’s standards, then we’re in for a long ride.
Negotiations to revamp the six-year old U.S.-Korea Free Trade Agreement, or KORUS, came to an end Wednesday after nine months of Trump labeling the agreement as “horrible” and a “job killer.”
The new deal expands access for U.S.-standard automobile exports to the South Korean market to 50,000 cars per manufacturer per year — anything above that has to meet South Korean standards. It also extends the existing 25 percent tariff on truck exports from South Korea to the U.S. for 20 years and restricts, by import quotas, the amount of steel South Korea can export to the U.S. An additional side agreement on currency is being finalized to prevent competitive devaluation and exchange rate manipulation.
The Trump administration’s rationale for updating the agreement was to promote a more reciprocal trade outcome that benefits U.S. workers, exporters and businesses by rebalancing trade, reducing the trade deficit and expanding U.S. export opportunities. This is largely in line with Trump’s promise to renegotiate better trade deals for the American people, and Trump and his supporters are celebrating this as the president’s first significant trade win.
However, when looking at the details, the agreement seems like a big nothingburger. Worse, it hurts the firms and workers Trump claims to help and threatens the free trade area that KORUS created.
The expansion of Korean vehicle quotas to further liberalize trade sounds great on paper. In theory, increasing auto exports to 50,000 cars per manufacturer per year from 25,000 should create more opportunities for U.S. auto companies and more jobs. But since no U.S. automaker even hit the old quota in 2017, it is unlikely to affect much. The demand for U.S. cars in Korea is relatively weak, and raising the quota will not change that.
Even though there is no South Korean automaker that currently exports pickup trucks to the U.S, the Trump Administration extended tariffs on Korean pickup trucks by 20 years until 2041. The tariffs were supposed to be phased out in 2021, creating an even playing field between American and South Korean automakers. Even though this will affect literally nothing, it extends the protectionism that should have been absent from the agreement in the first place.
The addition of a currency clause is designed to prevent currency manipulation, an unfair trade practice that can affect trade flows and trade balances between countries. But the new currency provision is only a side-agreement, lacks an enforcement mechanism, and is therefore functionally inconsequential. The failure to bring the currency provision into the official agreement is unfortunate, because South Korea is often suspected of devaluing its currency to promote exports and to gain an unfair advantage over the U.S.
Unfortunately, while the aforementioned aspects of the agreement will induce little change, the quota imposed on Korean steel will negatively affect American firms and workers. As part of an agreement to exclude South Korea from the recent 25 percent tariff imposed on steel and aluminum imports, South Korea agreed to cut its steel exports to the U.S. by 30 percent. But Korean aluminum producers will still be subject to the 10 percent tariff on aluminum. The quota imposed on Korean steel imports will only inhibit the ability for U.S. firms to acquire steel, leading to higher prices for American producers and consumers and lost jobs in steel reliant industries.
President Trump may see this revamped trade agreement with South Korea as evidence that his unilateral threat of tariffs can be successful. But his “win” doesn’t seem to amount to much for Americans. Given the strength of the economy, the strength of the tax cuts, and the president’s robust regulatory rollback, it would be better if the deal opened markets in a meaningful way and rolled back protectionism rather than advancing it.
Trade agreements are about removing barriers, not imposing new ones. Until Trump sees that, American workers and consumers will bear the cost.
Jimmy Sengenberger is President and CEO of the Millennial Policy Center, a public policy think tank based in Denver, Colorado, and the host of Business for Breakfast on Denver’s KDMT 1690 AM. Jacob Dubbert is a Research Assistant at the Center and a Masters student in Global Finance, Trade and Economic Integration at the University of Denver.
