Trump: Korea Deal Possible; Experts Say Not Without Softening of Section 232 Tariffs
Former top trade negotiator Wendy Cutler, who, as a career employee in the Office of the U.S. Trade Representative led on the South Korea-U.S. free trade agreement and the Trans-Pacific Partnership, said that South Korea can't make concessions to avoid 25% tariffs on its exports if the 25% Section 232 tariffs on autos and 50% tariffs on steel go unchanged in the deal.
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"The major sticking points are going to be the existing and prospective sectoral 232 tariffs," said Cutler, now vice president at the Asia Society Policy Institute. She said that Korea as a "major exporter of steel and autos absolutely needs some relief from those existing tariffs."
Potential Section 232 tariffs on semiconductors and pharmaceuticals are "also going to have a huge impact on Korea."
"The big question is whether the [Trump] administration is willing to negotiate any special treatment," she added, speaking about the fate of the Sputh Korea trade talks on a July 16 webcast hosted by the Center for Strategic and International Studies.
Cutler said that the U.S. hasn't shown flexibility on auto tariffs with Japan, which has led to a halt in negotiations. The fact that "we’re at a bit of an impasse with Japan on that issue" indicates that "it’s going to be tough sledding for Korea as well."
President Donald Trump, speaking to reporters the evening before as he returned from Pennsylvania, expressed pessimism about the prospects of an agreement with Japan, saying that Japan is not willing to open its market to the U.S., "so we might just stick with the [25% tariff rate in] the letter."
He was a little more positive about Korean talks. "South Korea's inclined to maybe do that," he said, referring to opening its market.
Cutler said on the webcast that while she doesn't rule out South Korea hammering out a framework deal by Aug. 1, "the clock is not working in Korea’s favor right now."
She said South Korea hasn't figured out within its own constituencies what it can offer the U.S., and noted that FTA partners like Korea and Peru are at a disadvantage in these negotiations, since they have already broadly lowered their tariffs on U.S. exports years ago.
Cutler said if Korea agreed to drop some non-tariff barriers, offered more investment in the U.S., shipbuilding cooperation and maybe some purchases, "you could see this coming together." She said the U.S. would also want less Chinese content in Korean exports, which could be difficult for Korea to promise.
Panelists noted that Korea is uniquely vulnerable to Trump's tariff spree, given that it both exports heavily to the U.S. and its companies operate in China, Mexico, Vietnam and other countries, where factories can face either U.S. tariffs or retaliatory tariffs on U.S. imports, in the case of China.
Cutler said, "The stakes for Korea here are enormous. Korea is an export powerhouse. It relies on access to the U.S. market for many of its key products." According to the International Trade Administration, about 36% of Korea's GDP last year was from exports of goods and services. It's the fifth-largest exporter in the world.
CSIS Korea Chair Victor Cha said he doesn't think relaxing non-tariff barriers or more investment in the U.S. will be enough -- they already tried with FDI. He said Trump would be excited about agriculture market access, but that's "politically very difficult in Korea."
He said last quarter, Korean exports to the U.S. were down 8% compared with the same period a year ago.
Philip Luck, director of CSIS's economics program, said think tanks are over-intellectualizing as they ask what Trump is seeking through reciprocal tariffs. "The objective is to have tariffs. If that is the objective, what do we negotiate over?"
Luck also expressed pessimism that retaliatory tariffs would make a difference in the U.S. position, even if an equally matched economy, like the European Union, turned to that tactic.
"This administration has shown a willingness to impose pretty significant harm on the U.S. economy" through higher tariffs, he said. "The idea of using a tool to harm them more, that’s also going to harm you, becomes a little less attractive."
"Economists like me have been saying this is going to be costly to the U.S. economy," he said. "It has not materialized that quickly yet."
As a result, he said, the administration has confidence the tariff strategy is working, so he said, "I don’t know they’re going to be too much in a deal mode."