The South Korea-U.S. Free Trade Agreement (KORUS) went into force in March 2012. According to the Office of the U.S. Trade Representative, it “means countless new opportunities for U.S. exporters to sell more Made-in-America goods, services, and agricultural products to Korean customers – and to support more good jobs here at home.”
It created America’s first free-trade agreement with a major Asian economy and promises to eliminate each nation’s tariffs on goods within five years. So how is it working out?
According to the Commerce Department, American goods exports to South Korea fell from $43.5 billion in 2011 to $41.7 billion last year. Imports rose from $56.7 billion to $62.4 billion. The U.S. goods trade deficit with Seoul is nearly 57 percent higher than before KORUS went into effect.
Washington’s exports went from $3.3 billion in 2011 to $2.7 billion in 2013.
What’s going on? Undoubtedly part of the story is a slowdown in South Korea. For example, growth in last year’s first quarter was the slowest since the recession. Tensions on the Korean Peninsula were high in 2012 and 2013. Tariffs from KORUS are still being stepped down. And it’s hard to determine the benefits of services and financial openings.
However, tariffs were never the big problem in opening opportunities to American exports. As the Economist Intelligence Unit wrote in 2012, “Demanding (South Korean) consumers, heavy-handed regulation and parochial industry interests raise invisible trade barriers.” In addition, KORUS did nothing to stop Seoul’s currency manipulation, which is part of a policy to give the country’s export-heavy manufacturing an advantage.
So KORUS is working out as critics, myself included, predicted: Some American companies will win, but overall the U.S. trade deficit will rise. And that trade deficit isn’t an abstract number. It represents lost American jobs.
After the post went up, U.S. Trade Representative Michael Froman sent this statement:
Since the Korea agreement went into effect, U.S. exports to Korea are up for our manufactured goods, including autos, exports are up for a wide range of our agricultural products, and exports are up for our services. Millions are benefitting from the lower tariffs on U.S. exports as well as the progress being made to tackle non-tariff barriers blocking U.S. exports to Korea. While our trade balance has been affected by decreases in corn and fossil fuel exports, these changes are due to the U.S. drought in 2012 and change in Korea’s energy mix, both of which were unrelated to the agreement. Looking ahead, the United States will be working to ensure the full implementation of the agreement so that U.S. exporters are able to realize even more opportunities.
And these statistics:
Goods and Services Exports:
U.S. goods and services exports to Korea were up 4.0 percent between full year 2011 (pre-FTA entry into force) and 2013. Goods exports were down 4.0 percent but services exports were up 25.1 percent.
For the first quarter of 2014 (latest data available for both U.S. goods and services trade with Korea), U.S. goods and services exports to Korea were up 7.9 percent.
Year-to-date (January to May 2014), U.S. goods exports to Korea were up 11.5 percent compared to the same time period in 2013, and 4 times higher than the growth of U.S. goods exports to the rest of the world (up 2.8 percent). Year-to-date goods exports are at record levels, in comparison to the same time period in other years. U.S. goods exports for the first 5 months of 2014 is 4.2 percent higher than the same period in 2011 (pre-FTA entry into force).
May marked the 8th straight month of U.S. goods export increases over the same month in the previous year. For example, U.S. goods exports to Korea in May 2014 were 10.2 percent greater than in May of 2013. They were up 20.8 percent in April, and 12.0 percent in March.
U.S. private services exports to Korea were up 25.1 percent between full year 2011 and 2013. According to preliminary data for the 1st quarter of 2014, U.S. private services exports to Korea are up 5.5 percent as compared to the 1st quarter of 2013.
U.S. receipts from Korea of royalties and licensing fees were up 61 percent between 2011 and 2013; U.S. travel receipts were up 26 percent.
U.S. manufacturing exports to Korea were up 2.9 percent between 2011 and 2013. They are up 8.7 percent so far this year (Jan-May) as compared to the same time period last year.
U.S. manufacturing export growth to Korea so far in 2014 is the 7th largest increase among our 20 FTA partners – over 7 times faster than the growth rate to the remaining 19 FTA partners.
U.S. Motor Vehicle exports to Korea were up 80 percent by value between 2011 and 2013 ($417.5 million to $763.1 million). For the first 5 months of this year, U.S. Auto Exports are up 6.3 percent from the same period last year.
U.S. Machinery exports to Korea are up 28 percent so far this year.
U.S. agriculture exports to Korea were down 26 percent between 2011 and 2013, but the decline in corn exports (due to drought) accounted for 94 percent of this decline.
For the first 5 months of this year, U.S. agriculture exports to Korea are up 37.1 percent from the comparable period in 2013 and on pace to be a record year.
You can take in the data and decide.
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