ANALYSIS/OPINION:
Despite the postelection talk of bipartisanship, good feelings in American politics don’t guarantee policy success, and nowhere has this been truer than in international trade. Just look at the Korea-U.S. Free Trade Agreement.
Negotiated mainly by President George W. Bush, strongly supported by President Obama and Republican Presidential nominee Mitt Romney, and passed by solid congressional majorities last year, the deal took effect March 15. Advocates confidently predicted a “win” that “will increase exports” and “boost our economy by more than our last nine trade agreements combined,” to quote Mr. Obama. Further, the basic KORUS blueprint is being used for upcoming deals, such as the Trans-Pacific Partnership with dozens of countries.
Now six months’ worth of data are in — given the hype, enough to justify initial stocktaking. The early verdict: KORUS looks destined for Edsel-dom.
The deal certainly is failing its supporters’ own tests. From March through September, America’s goods exports to South Korea were not up but down — from $3.79 billion to $2.98 billion per month. (All trade figures in this piece, including deficits, are presented as either domestic exports or imports for consumption, which minimize the double-counting of broader measures.) U.S. manufactures exports, a sector that Mr. Obama has singled out for special support, have fallen nearly as dramatically — from $3.12 billion to $2.61 billion.
True, South Korea’s export-led economy is stalling as global growth has sputtered. But isn’t offsetting such macroeconomic drags a major point of such trade deals? Moreover, American exporters sell to many struggling markets, too. Yet during the life span of KORUS, U.S. worldwide exports of all goods and of manufactures have declined at less than half the rate of American sales to South Korea.
KORUS flunks based on more important measures, too. After all, export increases can’t fuel American growth and hiring on net unless the nation’s trade balance improves. The monthly U.S. goods deficit with South Korea, however, has ballooned by more than 57 percent under the agreement. Therefore, bilateral trade under KORUS is subtracting from America’s already anemic growth.
But the most damning indictment of KORUS may be microeconomic. Because even the deal’s backers agreed that South Korean protectionism has long been especially egregious, its supposed power to tear down Seoul’s thick web of non-tariff trade barriers was a leading selling point. In industry after industry, however — especially those targeted by South Korea for export success — America’s sales to South Korea have been just as stagnant under the free trade agreement as before it. Just as stunning is the contrast between U.S. penetration of that market and of other markets.
No one should be surprised to see this effect in automotive products — a major South Korean industrial pride and joy. Thus, whereas autos and light trucks are America’s second-leading global export, they are only the 11th ranking U.S. exports to South Korea. The numbers for heavy-duty trucks: 20th and 241st, respectively. The wide gap is similar for subsidized iron and steel, the 13th-biggest American global export, but No. 46 on the South Korea list.
The South Korea gap also shows up in petroleum refinery products (the top U.S. worldwide export item but 23rd in exports to South Korea), construction equipment (11th in U.S. global sales, 91st in South Korea sales), telecommunications gear (27th versus 44th), turbines, medical equipment, and many other high-value sectors that create high-wage jobs and other major economic benefits.
Seoul’s powerful and secretive bureaucrats clearly are frustrating Washington’s supposedly masterful trade diplomacy, and still keeping U.S. products out of industries they consider strategic. Just as clear is that a new American strategy is needed, particularly because other likely Trans-Pacific Partnership participants, notably Japan and China, present challenges like South Korea’s. Otherwise, bigger deficits, greater U.S. debts, less growth and more job loss will remain bipartisanship’s main legacy in trade policy.
• Alan Tonelson is a research fellow at the U.S. Business and Industry Council, a national business organization whose nearly 2,000 members are mainly small- and medium-sized domestic manufacturers. Author of “The Race to the Bottom,” Mr. Tonelson also is a contributor to the council’s website, www.AmericanEconomicAlert.org, and tweets at @AlanTonelson.
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