South Korea emerges from US trade deal talks unscathed: Capital Economics

South Korea Kimchi package

U.S. President Trump’s saber-rattling over the U.S. trade deal with South Korea appears to have come to a lot of sound and fury, which in the end, signified little.

The Korea-U.S. free trade agreement, known as Korus, had appeared under threat after Trump had called it a “disaster” and threatened to scrap the deal, but now negotiators have reached a deal “in principle,” which is a relief for the country’s exporters, Capital Economics said in a note on Monday.

After all the bluster, South Korea’s concessions “will make little practical difference,” the note said.

Under the deal, the U.S. will keep tariffs on imports of South Korean pickup trucks until 2041, from 2021 previously, and South Korea will allow each U.S. carmaker to sell up to 50,000 cars, from 25,000 previously, in South Korea that don’t meet domestic safety standards, but do meet U.S. standards, the note said.

“At the moment, no Korean automotive company exports pickup trucks from Korea to the U.S., while no U.S. automaker sold more than 11,000 vehicles in Korea last year,” Capital Economics said. “In return, Korea will be partly exempted from the steel tariffs that were announced at the start of the month.”

Additionally, none of the tariffs removed under the original Korus deal will be reimposed, Capital Economics said.

So much for the art of the deal.

“The upshot is that the concessions that Korea has agreed to will have a very small impact on its economy,” the note said. But it added that South Korea’s exports face other threats, including any escalation of trade tensions between China and the U.S.

“Korea exports a lot of the intermediate goods to China, which are then assembled before being shipped off to their final destination,” Capital Economics said. “If the tariffs did lead to a sharp fall in U.S. imports from China, it would have significant knock-on effects
for Korea.”