By Troy Stangarone
South Korea has been one of the major beneficiaries of the trading system that developed after World War II. The reduction in tariffs and opening of markets helped to lift South Korea's economy from the depths of poverty at the end of the Korean War to become the world's 11th-largest economy today.
However, the system that South Korea has thrived in is increasingly coming under strain.
Recently, the United States Department of Commerce held a hearing on a Section 232 investigation to determine whether imports of foreign automobiles pose a national security risk.
Despite the renegotiation of the KORUS FTA to address U.S. concerns on automotive trade, it is unclear if South Korea will receive an exemption should the Department of Commerce determine that automotive imports harm U.S. national security.
If it does not, more than a quarter of South Korea's exports to the United States would face a 25 percent tariff, placing a significant burden on an industry that employs more than 400,000 South Koreans.
The Department of Commerce also recently announced a new Section 232 investigation into uranium, and there have been suggestions that the Trump administration could look to conduct Section 232 investigations in other areas such as semiconductors.
These investigations come in the aftermath of the prior Section 232 investigations into imports of steel and aluminum where South Korea agreed to limit its exports to the United States to 70 percent of its average over the last three years.
If the United States is increasingly turning to the issue of national security as a tool for extracting concessions from its trading partners, China has been silently been using economic pressure on its trading partners as well.
After South Korea allowed the deployment of the U.S. Terminal High Altitude Area Defense (THAAD) system on its soil, Lotte's stores in China suddenly began facing temporary closures due to fire safety violations.
Group tours to South Korea just as quickly plummeted, perhaps costing the South Korean economy nearly $10 billion alone. These were only a few of the tools that China used to try and pressure the Seoul government into reversing its decision on THAAD.
It might seem strange to suggest that exports of automobiles to the U.S. from a strong ally such as South Korea would represent a threat to U.S. national security, but the Trump administration is likely headed down a path of stretching the definition of what one would normally consider a national security threat.
While likely to produce results for the U.S. in the short run, there are downsides for the United States and South Korea in the long run.
As the U.S. engages in trade tactics that test the elasticity of the rules of international trade to pressure its trading partners, it also validates the tactics that China has used on THAAD and only increases the likelihood that China will continue to use economic pressure to achieve its own economic or security objectives in the future.
For South Korea, it could find itself increasingly vulnerable to arbitrary actions by larger trading partners if the rules-based order established after World War II began to loosen.
The current trends are not ones that South Korea can reverse on its own, but it can take steps in concert with other trading partners to strengthen the system.
On the regional level, South Korea could join the revised Trans-Pacific Partnership, recently renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The CPTPP was designed to strengthen trade rules and address nontariff or behind the border issues that can impede trade.
South Korea could also work with likeminded countries such as Australia and New Zealand to push for stronger rules in the Regional Comprehensive Economic Partnership (RCEP).
While RCEP was always designed to address tariff issues rather than the behind-the-border issues of TPP, a slightly more comprehensive RCEP could help further strengthen regional trade rules. Both steps would benefit South Korea by strengthening regional trade rules.
On the global level, the WTO's dispute settlement mechanism has played a central role in providing a means for trading partners to settle disagreements, but is increasingly coming under attack.
While the Trump administration's tactics might not always be ideal, the concerns it has raised are not always wrong. One step would be working with other countries in the WTO system to address legitimate U.S. concerns about the dispute settlement process.
Ensuring that a robust dispute settlement system remains in place will help protect South Korea's interest in future trade frictions.
Even if the current trade tensions turn out to be temporary strains on the international trading system, ensuring a rules-based trading system will become increasingly important for South Korea's economic future.
This means looking beyond tariffs to other issues that can impede trade. As the South Korean economy moves more into services and hallyu continues to spread, these issues will become increasingly important for the overall health of the South Korean economy.
Troy Stangarone (ts@keia.org) is the senior director of congressional affairs and trade at the Korea Economic Institute.
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However, the system that South Korea has thrived in is increasingly coming under strain.
Recently, the United States Department of Commerce held a hearing on a Section 232 investigation to determine whether imports of foreign automobiles pose a national security risk.
Despite the renegotiation of the KORUS FTA to address U.S. concerns on automotive trade, it is unclear if South Korea will receive an exemption should the Department of Commerce determine that automotive imports harm U.S. national security.
If it does not, more than a quarter of South Korea's exports to the United States would face a 25 percent tariff, placing a significant burden on an industry that employs more than 400,000 South Koreans.
The Department of Commerce also recently announced a new Section 232 investigation into uranium, and there have been suggestions that the Trump administration could look to conduct Section 232 investigations in other areas such as semiconductors.
These investigations come in the aftermath of the prior Section 232 investigations into imports of steel and aluminum where South Korea agreed to limit its exports to the United States to 70 percent of its average over the last three years.
If the United States is increasingly turning to the issue of national security as a tool for extracting concessions from its trading partners, China has been silently been using economic pressure on its trading partners as well.
After South Korea allowed the deployment of the U.S. Terminal High Altitude Area Defense (THAAD) system on its soil, Lotte's stores in China suddenly began facing temporary closures due to fire safety violations.
Group tours to South Korea just as quickly plummeted, perhaps costing the South Korean economy nearly $10 billion alone. These were only a few of the tools that China used to try and pressure the Seoul government into reversing its decision on THAAD.
It might seem strange to suggest that exports of automobiles to the U.S. from a strong ally such as South Korea would represent a threat to U.S. national security, but the Trump administration is likely headed down a path of stretching the definition of what one would normally consider a national security threat.
While likely to produce results for the U.S. in the short run, there are downsides for the United States and South Korea in the long run.
As the U.S. engages in trade tactics that test the elasticity of the rules of international trade to pressure its trading partners, it also validates the tactics that China has used on THAAD and only increases the likelihood that China will continue to use economic pressure to achieve its own economic or security objectives in the future.
For South Korea, it could find itself increasingly vulnerable to arbitrary actions by larger trading partners if the rules-based order established after World War II began to loosen.
The current trends are not ones that South Korea can reverse on its own, but it can take steps in concert with other trading partners to strengthen the system.
On the regional level, South Korea could join the revised Trans-Pacific Partnership, recently renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The CPTPP was designed to strengthen trade rules and address nontariff or behind the border issues that can impede trade.
South Korea could also work with likeminded countries such as Australia and New Zealand to push for stronger rules in the Regional Comprehensive Economic Partnership (RCEP).
While RCEP was always designed to address tariff issues rather than the behind-the-border issues of TPP, a slightly more comprehensive RCEP could help further strengthen regional trade rules. Both steps would benefit South Korea by strengthening regional trade rules.
On the global level, the WTO's dispute settlement mechanism has played a central role in providing a means for trading partners to settle disagreements, but is increasingly coming under attack.
While the Trump administration's tactics might not always be ideal, the concerns it has raised are not always wrong. One step would be working with other countries in the WTO system to address legitimate U.S. concerns about the dispute settlement process.
Ensuring that a robust dispute settlement system remains in place will help protect South Korea's interest in future trade frictions.
Even if the current trade tensions turn out to be temporary strains on the international trading system, ensuring a rules-based trading system will become increasingly important for South Korea's economic future.
This means looking beyond tariffs to other issues that can impede trade. As the South Korean economy moves more into services and hallyu continues to spread, these issues will become increasingly important for the overall health of the South Korean economy.
Troy Stangarone (ts@keia.org) is the senior director of congressional affairs and trade at the Korea Economic Institute.
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