New Korea-US trade agreement is only the beginning

Troy Stangarone

Next week President Lee Jae Myung will meet with U.S. President Donald Trump for the first time. One of the top matters will be to resolve the remaining issues from the trade agreement reached last month. This will be a challenging process. Both Japan and the EU have faced difficulties reaching a final understanding with the United States. Korea may as well. However, even if all the remaining issues are resolved, the outcome should be tempered with the realization that any understanding reached in Washington is the beginning of a process instead of the final word on the U.S. and Korea’s trade relationship.

Donald Trump is taking a different approach to trade this time. During his first administration, the United States struck deals that did not produce the desired results. Its experiences with China, and to a lesser extent Korea, illustrate the difficulties the Trump administration faces in achieving its goals — reducing the trade deficit, restoring manufacturing to the United States and ensuring the U.S. maintains a technological advantage.

During the first Trump administration, the United States concluded a "Phase One" deal with China designed to address U.S. concerns about forced intellectual property transfers, and also to reduce the U.S. trade deficit with China. Under the agreement, China agreed to purchase an additional $200 billion in U.S. goods and services over a two-year period relative to 2017 imports. China’s purchases were to consist of a mix of agriculture, energy, manufactured goods and services. China fell short of its commitment by 60 percent, based on data from the Congressional Research Service, though this was in part due to the COVID-19 pandemic, which restricted trade in 2020.

The agreement with China is not the only area where results did not meet expectations on trade. During his first campaign for president, Donald Trump argued that the Korea-United States Free Trade Agreement (KORUS FTA) was a bad deal. After threatening to withdrawal from the agreement, Trump negotiated minor changes to the KORUS FTA. The U.S. trade deficit with Korea, however, has only grown since the end of Trump’s first term. In 2020, the U.S. trade deficit with Korea was $16.7 billion, and by 2024 it had grown to $55.9 billion.

The Trump administration is signaling that it will be handling trade differently this time, not just in the extent of the tariffs but in how they ensure their compliance. In the case of the new agreement with Japan, Treasury Secretary Scott Bessent has stated that the agreement will be reviewed every quarter. If Japan is not living up to its end of the bargain, the United States will reimpose higher tariffs. This reflects the Trump administration’s understanding that countries may try to announce big flashy deals to reduce tariffs, yet over time they may not fully implement the agreements. It also reveals, as former U.S. trade official Michael Beeman has noted, that the second Trump administration is focused on securing equal outcomes rather than equal processes for trade.

If the only concern was that the United States will closely monitor provisions related to purchases and the new investment vehicles that Korea, Japan and the EU have agreed to create, that would be manageable. But there are two other aspects that could create tensions going forward.

The first is the lack of agreement on the terms reached between the United States and Korea. This is similar to the problem facing Japan and the EU, and is likely being created by the United States intentionally. By publicly arguing that trading partners agreed to more than they did and avoiding the use of legal documentation, the Trump administration is creating leeway to interpret the agreements how they see fit. If agreements do not proceed to the Trump administration’s satisfaction, they have the flexibility to reimpose tariffs. In essence, the Trump administration is building in the ability to maintain pressure on trading partners to push toward the results they want.

Tariffs, however, are not the only tool the Trump administration has at its disposal. Because of existing U.S. tools to manage the flow of technology, such as export controls, the administration can grow or constrict markets without resorting to tariffs in all cases. Nvidia and AMD, for example, have reportedly agreed to pay 15 percent of their sales in China to the Trump administration to receive export licenses for certain artificial intelligence chips. In time, Korean firms could face similar pressures.

With the KORUS FTA and other trade agreements, the shift to implementation was less contentious because it was process-based. With the Trump administration more focused on results, potential tensions are more likely to be made public and could lead to future tariffs or additional restrictions on technology over the remainder of his term. This may only be the beginning rather than the end of negotiations.

Troy Stangarone is the senior director of congressional affairs and trade at the Korea Economic Institute.