EnU.S. Vice President Mike Pence has warned that the KORUS trade deal with South Korea needs to be reviewed. He stated that the “most concerning” aspect of the deal’s results was that the trade deficit has “more than doubled”. Panjiva analysis of U.S. exports to and imports from South Korea show the deficit was $24.6 billion in the 12 months to February 2017 compared to $13.0 billion in the year to March 2012. That said, the peak on a trailing annual basis was $30.2 billion through June 30 so the tide may already have turned.
One disadvantage South Korea may have vs. regional peer Japan in dealing with the U.S. is a lower level of Foreign Direct Investment. As outlined in Panjiva research of February 13 Japan reinvests around 84% of its deficit in FDI in the U.S. In 2016 for South Korea that was just 8.5%. The figure may rise, however, with Samsung Electronics among others planning investments in the U.S. More may be needed however if KORUS talks start after the Department of Commerce completes its review of all U.S. free trade agreements.
Source: Panjiva
Those talks could be initiated (relatively) quickly as President Donald Trump can call for negotiations with 30 days notice and threaten to terminate the agreement with 180 days notice. What is not clear, however, is whether a revised deal would need approval from Congress or whether there would be pressure to follow the sort of consultative approach required with NAFTA renegotiations.
Panjiva analysis of the top 200 export lines from South Korea to the U.S. and vice versa in 2016 shows 32.4% are based in electrical, electronic and mechanical engineering, and a further 31.3% are in the automotive industry. U.S. exports to South Korea are led by aerospace (12.3%), agriculture / food (11.9%), semiconductor supply chain (6.4%) and energy (3.4%). The latter may provide an area for growth as the U.S. seeks to ramp up its liquefied natural gas exports.
Source: Panjiva
