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Tags: trump | south | korea | tough | talk | trade

Trump's Tough Talk on South Korea Trade Is Just That

Trump's Tough Talk on South Korea Trade Is Just That
(Bravissimos | Dreamstime)

By    |   Wednesday, 06 September 2017 01:02 PM EDT

Overshadowed by North Korea's sixth nuclear missile test Sunday were reports President Donald Trump could terminate the U.S.-South Korea free-trade agreement as soon as this week. Talk about bad timing.

With tensions rising on the Korean peninsula, Trump's brash trade talk will probably take a backseat to the more pressing problem of preventing nuclear war. But even without North Korea's recent escalation, it seems unlikely America will totally quash the 2012 trade pact, known as KORUS.

Date U.S.-Korea Trade Agreement came into force: March 15, 2012

America is South Korea's second-largest trading partner after China, while South Korea holds a spot much farther down the U.S. list. But America doesn't actually have the capability or know-how to manufacture a whole lot of everyday things it needs, such as cell phones and computers.

So even though South Korea represents the U.S.'s seventh-largest trading partner, the North Asian nation sells a lot more than it buys: America's goods trade gap with South Korea was $27.7 billion in 2016, more than double the $11.9 billion deficit in 2007.

That means even if Trump wanted to rip up KORUS, there's little chance the river of stuff flowing into the U.S. would stop. Rather, dissolving the pact would drive up consumer prices of smartphones and SUVs.

From a corporate perspective, fewer than 1 percent of South Korean companies depend on America for a meaningful amount of sales. Out of 2,750 publicly traded businesses, just 66 get more than a fifth of their revenue from the Americas, according to an analysis of data compiled by Bloomberg.  

Those most dependent include Doosan Bobcat Inc., a unit of South Korea's biggest construction equipment maker, and Hansae Yes24 Holdings Co., which supplies clothing to Wal-Mart Stores Inc. They each relied on North America for around 60 percent of sales last year.

Tech giants like Samsung Electronics Co. and SK Hynix Inc., along with automakers Hyundai Motor Co. and Kia Motors Corp., derive about one-third of their annual revenue from the region. 

Still, the impact wouldn't be insignificant.

America is Samsung's biggest market. And Hyundai and Kia have already taken a hit from a U.S. auto industry slump unrelated to trade matters. Although half the vehicles Hyundai sells are manufactured in the U.S., cars still represent the largest category of America's imported goods.

The auto trade with Korea has long been a sticking point with America since an 8 percent passenger tariff on American cars helped prop up a trade imbalance. But since the U.S.-Korea trade pact came into force in 2012, Korea's phase out of imported vehicle taxes helped boost U.S. auto exports by 280 percent to $1.6 billion in 2016. North American car exports to Korea increased 20 times faster than global auto exports during the period, according to the Office of the U.S. Trade Representative.

We saw the U.S.'s proposed border adjustment tax fail spectacularly as lawmakers realized a penalty on corporations that imported goods wouldn't entice U.S. manufacturing as much as it would increase prices for voters, er, consumers. There's little reason to believe scrapping the trade pact with South Korea would be any different.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Shelly Banjo is a Bloomberg Gadfly columnist covering industrial companies and conglomerates. She previously was a reporter at Quartz and the Wall Street Journal.

© Copyright 2023 Bloomberg L.P. All Rights Reserved.


ShellyBanjo
Overshadowed by North Korea's sixth nuclear missile test Sunday were reports President Donald Trump could terminate the U.S.-South Korea free-trade agreement as soon as this week.
trump, south, korea, tough, talk, trade
557
2017-02-06
Wednesday, 06 September 2017 01:02 PM
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