Failure to Sign a South Korean Free Trade Deal Is a Victory for U.S. Business

 |  Includes: EWY, FXI
by: David White

The positive view of a US - South Korean Free Trade Agreement is that it would mean more jobs for the US (and Korea). The actuality would likely have been far different. First, the US allows South Korea to export just about everything easily to the US already. However, the South Koreans bar US cars as too polluting. Certainly, they do not meet the desired MPG standards that the South Korean government finds desirable. One could easily argue that the US should have more stringent requirements in this area. The US oil trade deficit is crippling for the US economy. Still, this one-sided trade restriction in autos is not conducive to “more US jobs”. Rather, it would likely mean fewer. On top of that, the South Koreans would clearly benefit from free access to a much bigger market than the US would get. The Koreans were getting the “deal”. Yet they balked. Why?

The reason South Korea balked is that they have fairly good access to US markets without a free trade agreement. Yet, they can bar US cars from theirs. They can bar US ranchers and farmers to a large degree. Some progress has been made here. Still, there are myriad stories that South Korea allows a lot of these US products to be imported. Then they make sure they rot on the docks as they wait to be inspected. Even non-farm products often wait long periods to clear customs in South Korea. This can be very expensive for US companies. It can even make such trade unprofitable.

The above are valid reasons that the US should not have a Free Trade Agreement with Korea. However, the biggest reason not to sign such an agreement is China. If South Korea is the equivalent of a normal sized person, China is by comparison a many ton, incredibly strong giant. Any normal person would be intimidated by such a near neighbor. A Free Trade Agreement could end up serving as a conduit for China to dump its goods in the US. Does any rational person believe South Korea could stand up to China? Rationally, the US would have to be willing to sign a Free Trade Agreement with China before it signed one with a much smaller near neighbor of China. I think it is clear that the US does not at this time want a free trade agreement with China. No US labor group would possibly support this.

In sum, I am encouraged that Obama did not let himself be carried away by the force of his rhetoric this time. This time he seems to have put reality before rhetoric. Kudos to Obama. Good news for US business.

Disclosure: None