WASHINGTON—The Trump administration’s tariffs on steel and aluminum imports seem to be bearing fruit.
U.S. Trade Representative Robert Lighthizer and South Korea’s Trade Minister Kim Hyun-chong have reached a trade agreement in principle, according to the White House.
Once finalized, this would be the first renegotiation of a trade deal in U.S. history, said a senior administration official on March 27.
The agreement tackles currency manipulation, as well as many trade issues faced by U.S. exporters, mainly auto producers.
The United States already has a free trade deal with South Korea known as the U.S.–Korea Free Trade Agreement (KORUS). It was initially negotiated in 2007 and went into effect in 2012 under the Obama administration. The trade deficit with South Korea roughly doubled after Obama signed the deal.
Hence, Trump called KORUS “horrible” and asked the U.S. trade representative to enter into talks with Korea to fix the agreement.
The administration has recently gained leverage by threatening South Korea with the Section 232 steel and aluminum tariffs.
According to the new agreement, South Korea will be subject to a 10 percent tariff on aluminum. With respect to steel, however, it will be exempt from tariffs. Instead, the United States will impose a quota on Korean steel.
The quota will be product specific and equivalent to 70 percent of the average annual export volume based on the last three years’ average.
Through this deal, United States will be able to achieve a 30 percent reduction in steel imports by volume and value, said the senior administration official.
“This is a huge win, as South Korea is one of the key exporters of steel,” he added.
As part of the deal, the United States has also gained concessions for automotive exports. The current KORUS deal imposes many barriers to U.S. automotive producers and roughly 80 percent of the trade deficit in goods with Korea is in auto and auto parts, according to the White House.
According to the new agreement, the United States will maintain its 25 percent tariff on pickup truck imports from Korea for an additional 20 years, instead of three years under the existing trade deal. The tariff will now phase-out by 2041.
South Korea will also increase its annual cap for cars that meet U.S. safety standards but not Korean standards from 25,000 to 50,000 per manufacturer.
“We have doubled the export opportunity for our producers and workers,” said the official.
In addition, Korea has agreed to eliminate some regulatory barriers for U.S. auto exporters. For example, U.S. vehicles will not be subject to additional environmental testing. Koreans have agreed to align their environmental testing standards with the standards of the United States.
In addition, Koreans have agreed to level the playing field for American pharmaceutical exporters.
Koreans welcome the news that the negotiations have removed the uncertainty that had been brought by the U.S. steel and aluminum tariffs, said Eom Chi-sung, secretary general of the Federation of Korean Industries.
According to Chi-sung, the Korean steel and auto industries, in general, are not happy with the outcome of the deal.
“In negotiations, we know that we cannot get everything we want,” he said.
Korea had to make concessions to the U.S. auto industry, and in return it received something from the United States in steel and aluminum, even if it is not satisfactory, he added.
Besides the new trade deal, there will be a side agreement to tackle currency manipulation, which is a trade-distorting practice used by countries to boost exports.
Under this agreement, being negotiated by the Treasury Department and the South Korean finance ministry, South Korea would commit to new rules on “transparency and accountability” with respect to its monetary policy.
The currency agreement would not be part of the actual trade agreement, as it requires a lengthy legislative process. Hence the administration officials acknowledge that because it is not part of the actual trade agreement, there are no real means of enforcing it.
However, they believe it is an innovative addition to the deal and could be implemented in trade negotiations with other countries.