President Donald Trump has signed the first trade deal of his presidency: a revamped version of the six-year-old KORUS agreement with South Korea.
“From day one, I promised the American people that I would renegotiate our trade deals to ensure that our agreements were fair and reciprocal,” said Trump after the signing. “The new U.S.-Korea agreement includes significant improvements to reduce our trade deficit and to expand opportunities to export American products to South Korea. In other words, we are now going to start sending products to South Korea.”
As with many other countries, Trump had been incensed at the fact that South Korea sells more to U.S. consumers than it buys from American exporters—the U.S. trade deficit in goods was $22.9 billion last year, though as the U.S. exports many services to South Korea, the overall deficit was just $10.7 billion.
So what is in the revamped KORUS that makes it a better deal for the U.S.?
The big focus is on cars, a strong point for the Korean economy. Under the new deal, each American auto exporter will get to send 50,000 vehicles annually to South Korea that meet U.S. safety standards, rather than Korean safety standards.
That’s a doubling of the quota. But is it meaningful? Not hugely, as U.S. automakers currently don’t sell anything close to 25,000 cars per year in South Korea.
However, the new deal also extends until 2041 a 25% U.S. import tariff on South Korean trucks. That tariff had been due to phase out by 2021, leaving U.S. truck manufacturers more exposed to South Korean competition.
Still on the vehicle front, the South Koreans agreed to let gas-powered cars from the U.S. be sold as compliant with Korean emissions regulations, as long as they comply with U.S. testing procedures.
South Korea also agreed to relax customs checks that validate the origins of exports, and to tweak drug pricing so as to give fairer treatment to U.S. pharmaceutical exports.
Then there’s steel—U.S. tariffs on which have hurt U.S. automakers. South Korea agreed to cut 30% of its steel exports to the U.S., in exchange for which it gets an exemption from the White House’s 25% tariffs on steel imports. South Korea is the third-largest steel exporter to the U.S., so this is crucial for the country.
The South Korea parliament still has to approve the deal, so it is not quite set in stone yet. But it’s a win for the White House, which has lashed out across the world over trade issues but, until now, not resolved any disagreements.
Of course, South Korea has an ulterior motive for shaking hands. President Moon Jae-in wants peace with North Korea, and that means having U.S. support for talks. South Korean officials worked hard to settle the revised KORUS arrangement in order to avoid complications in the other matter.