South Korea Deal Avoided Worst Case Scenario, Experts Say
The recent trade deal announced between the U.S. and South Korea avoided the worst-case scenarios on the table and maintains comparative advantage with competitors, according to economists and experts on U.S.-Korea relations at the Center for Strategic and International Studies.
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Speaking on a CSIS podcast, Phillip Luck, the director of the CSIS Economics Program and a former Biden administration economist, said that "given the hand they were dealt, I think it was a pretty good deal" by the South Koreans. He said that by getting to a tariff rate of 15%, the South Koreans managed to maintain comparative advantage with Japan and "some other key partners."
Luck said the deal was struck "without making huge concessions" on the Korean side, but that during the negotiations, "one of the key problems [South Korea] had was they just didn't have much to give, because we had a free trade agreement."
William Reinsch, a senior adviser at CSIS, agreed with Luck that the Koreans did the best that they could, saying that in this environment of deal-making, "there's no good news, there's bad news and there's less bad news. This agreement is in the less bad news category." He highlighted that South Korea was able to set a rate for its products "not only across the board with 15%, they did it in autos, which is an important sector" for the Korean economy.
However, Reinsch said, while the Koreans negotiated a deal "as well as could be expected, there is a boatload of things that are not finished, probably more in this case than with some of the other agreements" signed with the Trump administration. These unfinished items include "things that the two countries subsequently have interpreted differently," he said, such as rice imports and "things that were punted to further discussion" such as digital trade regulation. He also wondered what will happen "when the administration comes in for a second bite and wants more than has been on the table so far."
The unresolved questions mean that "all these negotiations are going to be long term, if not permanent," Reinsch said. "They're just going to go on for a long time, because all these questions have to be addressed."
Victor Cha, the Korea Chair at CSIS, said that it was "very important" for South Korean negotiators to get to a 15% tariff rate "just because that's where Japan and the EU was" and that if they had not "it would have been a political disaster." He said that Korean negotiators had been pushing for a 12.5% rate "to the very end," but ultimately, "the president nixed it. He vetoed the idea."
Cha speculated that the upcoming summit between the U.S. and South Korea will not just be a celebration of "the deal that had just been made," but also "an opportunity for Trump to look for more things from Korea." He concluded by saying: "This is certainly not the end of the story."