Whether you agree with the Korea-U.S. Free Trade Agreement (KORUS) – or with the President’s approach – what is unquestionably true is that Trump won the stare-down. He waved the threat of punitive trade tariffs as a bargaining chip to force pro-America concessions from our trading partners.
Some of his staunchest supporters assert that the President has just been misunderstood, that “the elites” in Washington, D.C., New York, London, and Brussels can't decipher the subtext of the President’s words and are ill-equipped to comment on his successes. That may be true, but we’re going to try anyway.
For more information reach out to Joshua Gardner, Vice President, North America Lead, Global Energy Practice, MSL | joshua.gardner@mslgroup.com
The Art of the Korea-U.S. Trade Deal - Making Sense of U.S. President Trump's Latest Gambit
1. The Art of the Korea-U.S. Trade Deal
Making Sense of U.S. President Trump’s Latest Gambit
2. Is it possible that President Donald Trump is winning on trade?
Setting aside the specifics of the Korea-U.S. Free Trade Agreement (KORUS) –
which the Trump Administration and the Republic of Korea Ministry of Trade,
Industry and Energy agreed to modify after only six months of negotiations– it’s
fair to wonder if Trump’s strategy is working.
Whether you agree with the deal – or with the President’s approach – what is
unquestionably true is that Trump won the stare-down. He waved the threat of
punitive trade tariffs as a bargaining chip to force pro-America concessions from
our trading partners. He employed the bare-knuckle tactics borne of his real
estate background, exploiting any and all leverage he had; in this case, using
Korea’s dependence on the United States for its ultimate security to pressure
Seoul into making concessions on trade.
And it seems to have worked: the nation that made concessions here was Korea,
not the U.S. Even The New York Times – among the President’s harshest critics,
as well as his favorite punching bag – begrudgingly conceded that the deal
“represents the type of one-on-one agreement that Mr. Trump says makes the
best sense for American companies and workers.”
Some of his staunchest supporters assert that the President has just been
misunderstood, that “the elites” in Washington, D.C., New York, London, and
Brussels can't decipher the subtext of the President’s words and are ill-equipped
to comment on his successes. That may be true, but we’re going to try anyway.
UNDERSTANDING THE DEAL
Viewed broadly, this new deal is not significantly different from the old one, and
is more accurately characterized as a slight modification, rather than a true
renegotiation.
South Korean exporters are relieved that none of the U.S. tariffs lifted under the
original agreement have been reinstated. In addition, the modified deal fails to
address critical sectors of ongoing disagreement, notably on agricultural issues.
As former Assistant U.S. Trade Representative for Japan, Korea & APEC Bruce
Hirsch said, “Is this as grand a deal as people initially thought it might be? No.”
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The Art of the Korea-U.S. Trade Deal
Making Sense of U.S. President Trump’s Latest Gambit
What’s in the Deal?
In exchange for a permanent
exemption to the new U.S.
25% global steel tariffs,
South Korea has agreed
to the following five
provisions:
An additional 10-year
protectionist tariff on U.S.
imports of Korean light
trucks
A doubling of the total
number of U.S. cars that
can enter the Korean
market
Harmonized testing and
labeling standards,
streamlined customs
verifications, & small fair-
treatment gains for
pharmaceuticals
A non-enforceable
promise by Korea to
refrain from currency
manipulation
An agreement by Korea to
voluntarily lower exports
of Korean steel to the U.S.
by 30%
Can President Trump’s actions and bluster about
tariffs actually persuade other countries to open
their markets to American goods and services —
while doing little or nothing to damage the flow of
goods and services across international borders?
3. KEY LESSONS
This is a dangerous game President Trump is playing.
The deal is outsized by the level of market instability
the recent escalating trade rhetoric has caused.
In the long-term, he risks upending three decades of
progress in opening markets for international trade
that have benefited the citizens of the world in lower
prices for nearly everything.
History should not be ignored. His recent escalation
with China over trade imbalances may risk a 1930s-
style trade tariff war that shut down global trade and
cratered the world in depression. If that happens, the
President’s trade strategy will have clearly backfired.
In the short-term, he has fulfilled one of his key
campaign promises: to renegotiate trade deals to
better serve the United States. But he has shown his
cards with respect to his negotiation tactics. We can
now better discern how he intends to operate going
forward. Here are three key lessons:
1) “What Happens in Korea Won’t Stay in Korea.”
The President’s disdain for “awful trade deals” is
not limited to revising KORUS or sparring with
China on steel, aluminum and solar panels. Rather,
it represents a global worldview hostile towards
the multilateral trading system itself. He has
renewed his threat to withdraw from NAFTA,
paused the Transatlantic Partnership with the EU,
and spurred the complete withdrawal from the
Trans-Pacific Partnership in Asia.
The Trump Administration views the revised Korea
deal as a successful model of forced bilateral
negations, and will therefore attempt to replicate
it around the world.
2) Trump Wants What He Wants.
According to reporting from Axios, the remarkably
well sourced, unofficial backchannel, and
preferred information leak recipient of the White
House, Trump said to his Chief of Staff, “I want
tariffs. And I want someone to bring me some
tariffs… I know there are some globalists in the
room right now. And they don't want the tariffs.
But I'm telling you, I want tariffs.”
Hinting at further evidence of the Trump
Administration’s preference for hostage taking as
the preferred model of trade policy going forward,
one official declared: “the President was correct to
undertake renegotiation. He was able to make it a
better deal and win concessions that should have
been won before … to create and take advantage
of leverage in this situation in a way that helps U.S.
workers and businesses.”
3) Trump’s Trade Strategy is Transactional.
Despite these relatively modest outcomes of the
revised KORUS deal, the Administration trumpeted
its ability to create jobs as a justification for the
Trump Administration’s transactional and
aggressive policy approach with an FTA partner
country and key ally. But now that other countries
see his negotiating approach, they can better
prepare for any sort of trade dispute.
This suggests an opportunity for governments and
industry leading companies to hedge against truly
harmful policy outcomes by packaging small
concessions as a net positive for U.S. jobs, the
metric that matters most to Trump.
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The modified deal is unlikely to do much to help President Trump achieve
his goal of reversing the trade deficit between the two countries.
These negotiations lasted only a few months, far shorter than U.S. trade talks typically take. This outcome
suggests U.S. trading partners remain unwilling to give in unilaterally under pressure in the face of new
protectionist U.S. tariffs by giving up major concessions, but will negotiate smaller changes on the margins of
existing agreements. In addition, striking a deal quickly has the advantage of removing a potentially divisive
issue between the two military allies at a time of tensions and delicate talks with North Korea. South Korean
President Moon has already announced his intention to hold an historic Inter-Korean Summit with Kim Jong-Un
at the end of April, and appears to be prioritizing national security and the overall health of the U.S.-Korea
Alliance.
4. CONCLUSION
Trade deals are always supposed to create benefits for everyone involved, and while negotiators
always pursue their national interests, they don’t gain anything from lopsided deals that fall apart
because their counterparts can’t defend them politically at home. It’s a delicate balance, with spoken
and unspoken sensitivities, which is one reason the negotiations take so long.
By contrast, President Trump has a zero-sum view of trade, where anything good for the guy on the
other side of the table is bad for the sucker who gave it to him. That combative alpha-male approach
served Trump well in real estate, and it has worked for him in politics, too. In global trade, it was
thought this would be a change of pace for him; the early evidence suggests the it may not be quite the
change many anticipated.
His approach may lead to small wins. The jury is out on more substantive and comprehensive
negotiations.
Still, questions remain as to whether this particular deal was a singular event or a new paradigm. While
we wait to see which it was, there are three important steps every global company should take that will
help arbitrate disagreements in advance and avoid becoming a high-profile candidate the Trump
Administration – or the President himself – could target in pursuit of its protectionist trade
enforcement agenda.
1) Expand Relationships at the Federal Level.
Initiate preliminary government relations mapping to the right federal agencies, and at the
appropriate level for outreach.
2) Strengthen State and Local Congressional Outreach.
Many of our clients operate facilities in multiple U.S. states. This means that multiple U.S. Senators
and Congressmen whose districts contain your operations directly represent constituents who are
also your employees. Put an American face on your business. Building local allies, validators, and
advocates who can speak with a credible voice is key.
3) Build Relationships with U.S. Business Trade Associations and NGOs.
Every client should consider expanding both institutional and personal relationships with key allies
in the U.S. business community at large, as well as specific sectoral trade associations and
environmental NGOs.
By taking these three proactive steps, clients can demonstrate they don’t need to decipher the
President’s words, because they’re focused on his actions.
###
Joshua Gardner
Vice President
North America Lead
Global Energy Practice
joshua.gardner@mslgroup.com
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