Trading with South Korea would promote American influence in the region and constrain China.
The People’s Republic of China (PRC) is ever more confident, challenging U.S. naval ships in the South China Sea and the U.S. dollar in international forums. China has displaced America as the number one trading partner with leading East Asian states. And Beijing is creating a military capable of deterring if not defeating the U.S. armed forces.
How do the Obama administration and Democratic Congress respond? By retreating economically from the region. Sen. Barack Obama termed the U.S.-South Korean free trade agreement (FTA) “badly flawed” and urged the Bush administration not to even submit it for ratification. At his confirmation hearing U.S. Trade Representative Ron Kirk called the agreement “unacceptable.” Although increased trade with the Republic of Korea (ROK) is “one of the biggest opportunities we have,” he affirmed that the administration “will step away from that if we don’t get it right.” This policy is remarkable for both its economic and geostrategic folly.
Washington instead should be expanding American investment and trade opportunities in East Asia. The starting point should be to ratify the FTA with the ROK.
South Korea possesses one of the world’s largest economies and is among the top dozen trading nations. Total U.S.-ROK trade ran more than $80 billion in 2008. The seventh largest merchandise trading partner of the U.S., Seoul is a major importer of aircraft, cereals, chemicals, machinery, and plastics. Even a small expansion of U.S.-ROK trade would offer a significant benefit for America’s economy.
The FTA offers unusual potential because South Korea has been a notoriously closed market. Dependent on exports for its stunning economic success, the ROK is far less hospitable to other nation’s exports, including from the U.S. The Korea Economic Institute reported: “Korea remains a very difficult place in which to do business.”
The FTA responds by helping to open the Korean market. Jeffrey Schott of the Peterson Institute for International Economics reported: “The U.S.-Korea pact covers more trade than any other U.S. trade agreement except the North American Free Trade Agreement” and “opens up substantial new opportunities for bilateral trade and investment in goods and services.”
More specifically, reports the U.S. Trade Representative:
In addition to eliminating South Korea’s seven percent average tariff on industrial goods, the KORUS FTA effectively addresses a wide range of discriminatory non-tariff barriers to U.S. goods and services. It will improve regulatory procedures and due process in South Korea through the most advanced transparency obligations in any U.S. FTA to date. In addition, the Agreement contains an unprecedented package of automotive related provisions, including a unique dispute settlement mechanism that will level the playing field for U.S. automakers in this important market.
Obviously, the FTA does not eliminate all economic barriers in the ROK. Sen. Obama was one of many critics to point to continued Korean restrictions on the sale of U.S. autos and agricultural products. But the pact makes important progress. Explained Schott: “The FTA outcome on autos makes both sides better off than they would be in the absence of the bilateral deal” and “the FTA liberalization of farm trade predominantly benefits U.S. agricultural exporters.”
Moreover, Seoul is in no mood to make concessions to the Obama administration. ROK President Roh Moo-hyun negotiated the treaty at some political cost. His successor, Lee Myung-bak, already has been attacked for easing restrictions on American beef imports. Trade Minister Kim Jong-hoon declared simply: “There are [to be] no renegotiations or additional negotiations.”
The U.S., whose share of total Korean imports has been falling, would obviously benefit from the pact. The likely increase in exports, perhaps $20 billion annually, would be particularly helpful in the midst of today’s deep recession. Demand for American audiovisual, financial, and telecommunications services also likely would increase substantially. Overall, the U.S. International Trade Commission figures that American exports to South Korea would rise nearly twice as much as imports from the ROK. Since the South’s per capita GDP today is well below that of the U.S., South Korean demand is likely to increase even more over the longer-term. Even more so if the two Koreas eventually reunite.
Economics is not the sum total of the issue, however. The Korean FTA is part of East Asia’s great geopolitical game. A rising China is bumping up against a less dominant America; strengthening trade ties is one way for Washington to ensure continued American influence in the region.
The U.S. remains the globe’s sole superpower, with the ability to project power into every region. But the PRC is engaged in a measured military build-up directed at creating armed forces capable of deterring American intervention in East Asia. Washington will find it increasingly difficult to achieve its objectives with military force.
Despite the Wall Street crash last fall, the U.S. retains the world’s largest and most productive economy. And China has not escaped unscathed from the global downturn. However, Washington’s economic dominance in East Asia is waning. By some measures the PRC has surpassed Japan as possessing the second largest economy.
Moreover, China’s rapid economic growth has naturally led to expanded investment and trade throughout East Asia. American companies have been pushed into second and even third place in South Korea and Japan.