The Cost of Free Trade

Only twenty-four hours had gone by since the latest nuclear test by North Korea, when the Republic of Korea received another bit of shocking news. This time, not from its enemy to the north, but from a long-time ally, the United States. On Friday September 2nd it was reported that  President Trump was considering pulling out of the KORUS (Korea -US) Free Trade Agreement, putting in danger the two countries bilateral economic relationship as well as straining the political alliance in a time of heightened tensions.  A decision of this magnitude will certainly have a negative ripple effect on the perception of unity between these two allies in the face of Kim Jong-un’s belligerence, and raise voices of concern in the Asian country.

 

The timing of the announcement could not have been more disruptive, however it clearly followed a pattern previously used by the new administration. Trump has repeatedly critiqued the free trade agreements the US has with its close allies, as the primary reason behind the large deficit sustained in the US economy. By leaving the TTIP (Transatlantic Trade and Investment Partnership) and threatening to follow the same path with NAFTA (North American Free Trade Agreement), he has aimed at gaining a stronger position at the table of negotiations. Trump has made sure to make these announcements at critical moments to increase their efficiency in destabilizing the other side. However, the question arises as to whether this has been a successful strategy to achieve that objective.

 

KORUS FTA: Is the agreement damaging to US interests?

 

A first analysis of the KORUS FTA shows a booming economic cooperation, which has positioned the Republic of Korea as the 6th largest trading partner of the United States. This relationship has derived an estimated traded total of $144.6 billion dollars in goods and services in 2016. In addition, the levels of FDI are substantial, with the US investing $34.6 billion and Korea investing $40.1 billion dollars in each other’s countries in 2015 alone.  Yet for Trump, the problem spurs out of the 17 billion deficit left by this bilateral trade – a figure which experts state is fuelled by South Korea’s macroeconomic structure and ability to exploit economies of scale in key industrial areas, and not due to a poorly negotiated trade deal.

 

It is clear that President Trump understands this trade deficit as a zero sum game, in which there is a clear losing side. However, in concentrating on the economic aspect alone, he obviates the many political and security gains from this relationship. A stable and economically strong South Korea represents a powerful challenge to the chaotic and seemingly unreasonable North Korean regime. Moreover, a strong economy with trade ties to the international community ensures a robust set of institutions and a functioning economy that can regulate such economic activity. The US should be quick to understand that this economic partnership has to be assessed within a broader spectrum of relations, as the FTA represents only a single aspect of a much larger bilateral partnership.

 

By removing the US from this trade agreement, president Trump is sending a powerful message – one which says that the country’s economic interests are above anything else. And perhaps, in a normal state of affairs, this would be understandable. However, the looming threat of a nuclear attack will certainly give reason for many South Koreans to ponder the type of relationship they would expect from such an ally.

 

A Divided Korea in a multipolar world

 

Perhaps it has not been in Trump’s political calculation that such a move, or even the threat of one, should have such a profound effect on the US stance in the region. This rift works in favour of Pyongyang, by showing a divided alliance that scuffles over trade deals. Furthermore, such divisions can only make Kim’s regime bolder in its behaviour, and more open to divisive tactics. A non-united front will always be easier to confront, especially when many in South Korea favour a negotiated solution to the conflict, and a more benevolent stance towards the Kim regime.

 

On another front, the wavering of support in a moment tension opens the door for other regional powers, such as China, to present themselves in a more benevolent light. Despite the recent tensions between South Korea and China over the implementation of the Terminal High Altitude  Area Defense System (THAAD) missile system, China could take this opportunity to push for a deeper economic integration and fill the space left behind by a theoretical US pull out. This is something that could further alienate US interests and presence in the region.

 

It has become evident that the current administration will use any opportunity to gain a favourable hand in trade negotiations. However, the poor timing and the symbolic weight of attacking a vital ally amid its current face-off with North Korea is likely to backfire. As has happened many times before, Trump will try to take advantage of a moment of weakness to get the upper hand. However, just like many times before, the damage done might be greater than the potential gains.


Disclaimer: Any views or opinions expressed in articles are solely those of the authors
and do not necessarily represent the views of the NATO Association of Canada.

“Seoul” (2016) by Pexels via https://www.pexels.com/search/seoul/. Licensed under CC0.

Daniel Morales

About Daniel Morales

Daniel is the Director for the International Business and Economics Program at the NATO Association of Canada. He is a recent graduate of a Masters in International Relations from the Instituto Empresa Business School and Sciences Po Paris and is passionate of the world of emerging technologies and their effect in our economy and security. Daniel completed his undergrad at the University of Toronto with an emphasis in Economics and Sociology and is an avid learner of languages.