How Trump's economic team will think about South Korea
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Police guard a gate to the South Korean National Assembly building. Photo: Woohae Cho/Bloomberg via Getty Images
A dramatic day in South Korea will put more pressure on the incoming Trump administration to figure out an already strained but strategically crucial trade relationship.
Why it matters: While South Korea is one of the closest U.S. allies in Asia, Trump's new economic team has a deep background in — and concern about — the growing trade deficit between the two countries.
- The U.S. now imports far more from South Korea than it exports to the country — a big red flag for the incoming president.
- Those economic issues are complicated by the two countries' deep and regionally vital military ties.
Driving the news: South Korea was rocked yesterday by President Yoon Suk Yeol's declaration of martial law, only for him to withdraw it hours later.
- The country's parliament is now moving to impeach him, which would temporarily remove him from office pending a trial.
- The won fell to a multiyear low against the dollar and ETFs tied to Korean companies plunged, though they rebounded as the situation defused.
- U.S. officials reportedly had no advance notice of the declaration in a country that hosts nearly 30,000 American soldiers.
Between the lines: Renegotiating the U.S.-South Korea free trade deal, known as Korus, was a priority during the first Trump administration.
- The trade official who led those talks, Jamieson Greer, is now the incoming U.S. trade representative.
- Since Korus was renegotiated, though, the deficit has only gotten worse.
Zoom out: "The free trade agreement that President Trump negotiated, that was a signature accomplishment for the Trump administration…it's worked very well for South Korea. It's hard to tell how it's worked for us," says Robert O'Brien, the last national security adviser under Trump.
- Korean exports to the U.S. have boomed, led by cars and auto parts amid tariff changes.
- It's difficult to know if the deficit would have been larger were it not for the new deal, says O'Brien, the chairman of American Global Strategies.
Reality check: A trade deficit isn't necessarily a bad thing — economists have long pointed to the benefits to productivity and the economy that come from lower priced goods and foreign investment in the U.S.
- Where it gets tricky is Trump's aversion to trade deficits on principle.
- "I do expect the Trump administration is going to be scrutinizing that relationship on a couple different levels" related to deficits and currency manipulation, says Clete Willems, a partner at Akin Gump and former deputy director of the National Economic Council under Trump.
Zoom in: Among the complex issues an embattled Yoon and Trump will have to confront:
- The cost of maintaining all those troops.
- Growing foreign direct investment by Korean conglomerates in U.S. manufacturing (of which the U.S. wants more)
- The prospect of European-style regulations on some digital companies, which Willems said the administration "really won't tolerate."
The bottom line: A likely Trump priority just got more complicated than anyone expected.
