The Peninsula

Setting the Record Straight – KORUS Trade Statistics

By Phil Eskeland

As President Barack Obama arrives in Asia, some critics of free trade use out-of-date or incomplete trade statistics on the Korea-U.S. (KORUS) Free Trade Agreement (FTA) to justify opposition to the Trans Pacific Partnership (TPP).

First, it is premature to offer a definitive opinion on the success or failure of any trade agreement just two years into implementation.  The overall increase in the U.S. merchandise trade deficit with South Korea in 2012 and 2013 can be primarily traced to two commodities:  corn and coal.  According to the U.S. Trade Representative, Ambassador Mike Froman, “While our trade balance has been affected by decreases in corn and fossil fuel exports, these changes are due to the U.S. drought in 2012 and change in Korea’s energy mix, both of which were unrelated to the agreement.”[1]  In fact, according to the Korea Customs Service, U.S. exports to Korea of items that experienced an immediate tariff reduction to zero upon the first day of implementation saw an increase of 4.1 percent in 2012 and another increase of 6.9 percent in 2013.

Second, opponents of TPP only look at one statistic related to merchandise exports and ignore the repeated U.S. trade surplus in services with Korea, growing at an annual rate of approximately 20 percent in recent years.  While the 2013 annual figures for trade in services have not been released yet from the Bureau of Economic Analysis (BEA) at the U.S. Commerce Department, the U.S. experienced a record $6.5 billion surplus in services exports to Korea in 2012.  For the first nine months of 2013, the U.S. had already achieved a $6.25 billion surplus in trade in services with Korea and thus is on track to surpass last year’s record level.

Nevertheless, even if U.S. merchandise trade data is only used, the overall trade picture with Korea has shifted in recent months, particularly as the Korean economy has improved.  In other words, the opponents of free trade are using outdated information about the KORUS FTA in the debate over the TPP.  Since last fall, the U.S. monthly trade deficit in merchandise goods with South Korea has been less than the previous year’s level.

Source: Foreign Trade Division, U.S. Census Bureau

One reason is that since October, the U.S. has steadily experienced a higher dollar volume in exports to Korea each month as compared to the previous year’s level.  For example, the sale of U.S. goods to Korea in February 2014 was $113 million more than the level experienced in February 2013, and, over the same time period, U.S. imports from Korea fell by $75 million.

Source: Foreign Trade Division, U.S. Census Bureau

In other words, if present trends continue, the 2014 U.S. merchandise trade deficit with Korea is on track to be less than the 2013 level.  Obviously, in any month-to-month statistic, there will be anomalies that could temporarily set aside the progress being made on increasing overall U.S. exports to Korea.  For example, crop failures.  Nonetheless, the trend over the past five months thus far looks positive as more and more American exporters look to Korea to expand their market.

So, the next time you hear remarks about the “exploding” trade deficit with Korea as a reason to oppose market-opening negotiations such as TPP, check to see if the anti-trade proponents are working off old talking points.