President Donald Trump seems determined to reset the U.S. trade relationship with South Korea. But if his effort backfires, it could hurt several states that depend upon commerce with Seoul, including California, Texas, Washington and South Carolina.
Trump has long said he wants to tear up the 2012 U.S.-South Korea Trade Agreement, an Obama-era pact that will surely come up Friday when he holds his first formal meeting with South Korean President Moon Jae In, who arrived in Washington on Wednesday.
But business groups and economists say a miscalculation by Trump could worsen economic and security relations with South Korea, the United State’s seventh-largest trading partner. The ripples could be felt on both the Pacific and Atlantic coasts, and into the heartland.
“U.S. trade with South Korea is more diversified than it has ever been,” said Jock O’Connell, an economist with California-based Beacon Economics. “It’s not just the West Coast that would be a victim of any trade war with South Korea.”
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O’Connell notes that South Korea is a major manufacturer of auto parts, and increasingly its companies are shipping those parts through ports in Georgia and South Carolina to reach auto assembly factories in southeastern states. Before, Southern California’s big ports enjoyed much of that business.
South Carolina will also benefit from Samsung’s announcement on Wednesday that the South Korean conglomerate plans to build a $380 million washing machine factory northwest of Columbia that will employ more than 950 people.
Overall, California is the state with the largest export trade with South Korea, totaling $8.2 billion in 2016. It was followed by Texas ($6.9 billion), Washington ($4.1 billion) and Arizona ($1.3 billion), according to the U.S. Census Bureau.
It’s not just the West Coast that would be a victim of any trade war with South Korea.
Jock O’Connell, California-based trade economist
Moon’s visit — his first overseas’ trip since taking office on May 10 and his first formal meeting with Trump — is likely to focus on the threat posed by North Korea’s nuclear and missile programs. On Thursday, the U.S. Treasury Department sought to place more pressure on Pyongyang by announcing sanctions on a Chinese bank accused of doing business with North Korea.
But in a briefing to reporters this week, a senior administration official said the president also views trade “as something that needs to be discussed frankly with South Korea.” South Korean steel exports and barriers to U.S. auto sales are two of the issues, the official said.
The U.S.-South Korea Trade Agreement, which went into effect in 2012, took years to negotiate and ratify. It reduced South Korean tariffs on U.S. agricultural products, giving U.S. farmers an inside track to Asia’s fourth largest economy. It is also included commitments for South Korea to reduce barriers to U.S. automobiles, but critics such as Trump say those provisions are not strong enough.
Since the pact took effect, the U.S. goods trade deficit with South Korea has more than doubled, to $27.7 billion in 2016. Increases in U.S. exports to South Korea have been less than expected, although some of that can be attributed to the slowing of the South Korea economy.
In an April interview with Reuters, Trump called the South Korean trade pact “horrible” and “unacceptable,” saying it was unfair to U.S. companies and workers. He pledged to either renegotiate or terminate it.
Since then, the administration has eased some of its rhetoric. At a June 22 congressional hearing, U.S. Trade Representative Robert Lighthizer criticized aspects of the trade pact, but told lawmakers, “There are no plans to drop out... at this point.”
Some of Trump’s allies, including the U.S. Chamber of Commerce, have been urging him to recognize the benefits of stronger ties with South Korea. States like Arizona have seen its exports to South Korea surge, as have farmers nationwide that market wine, cherries, pistachios and oranges, said Tami Overby, senior vice president for Asia at the U.S. Chamber of Commerce.
While barriers to U.S. manufactured goods remain a problem, said Overby, “There’s been a significant improvement in our two countries and how we work together on trade issues.”
Moon, a 64-year old human-rights lawyer, swept to power this year following the scandalous impeachment of former South Korean President Park Geun Hye. Unlike Park, he is not allied with South Korea’s corporate conglomerates, who’ve been forces for protectionism. But Moon also has rattled U.S. policy makers by advocating engagement with North Korea and a review of the U.S. missile defense system opposed by China and many South Koreans.
After his arrival Wednesday, Moon spoke to the U.S. Chamber of Commerce. While he didn’t mention the trade pact by name, he put in a plug for enhanced trade, saying “it is enriching the daily lives of our peoples.”
Moon’s schedule has him attending a formal dinner at the White House Thursday night with the president and the first lady. On Friday, he and Vice President Mike Pence will visit the Korean War Veterans Memorial. Moon’s meeting with Trump will be followed by a joint statement by the two.
O’Connell, the trade economist, said he’ll be watching to see if the president keeps his focus on the North Korea threat or uses the visit to vent about trade deficits with South Korea. That focus, he said, “sends disturbing signals at a time when security issues should be foremost in U.S. policy in Asia.”