The Peninsula

U.S.-Korea Trade Imbalance Continues to Dramatically Decline

By Phil Eskeland

The Foreign Trade Division of the U.S. Census Bureau recently released the latest set of monthly trade statistics for October 2018 that includes data on 3^rd Quarter services trade.[1]  In terms of merchandise goods, while the U.S. trade deficit through October with the world expanded by 11 percent, the Republic of Korea (ROK) bucked this trend by declining 22 percent to just $15.1 billion.  This is partially as a result of soaring exports of U.S. oil and gas to South Korea, reaching $5 billion for the first nine months of 2018, an incredible 166 percent increase.  In fact, the U.S. exported a record monthly level of $5.3 billion in goods to South Korea in October.   If trends continue, the U.S. bilateral merchandise trade deficit with South Korea could dip below $20 billion, which would then remove one criteria that currently has the ROK on the “monitoring list” of countries that the U.S. Treasury Department has to investigate foreign government currency practices.

However, a more complete picture of trade between the U.S. and South Korea includes services.  The trend with respect to Korea still shows a dramatic decline in the bilateral goods and services trade deficit of 43 percent since 2017 or 75 percent since its height in 2016.

South Korea continues to rank ninth – behind countries such as France, India, Italy, and Japan – in terms of nations with any significantly measurable trade deficit with the United States.  Even though trade deficits should not be used as any significant measure of the benefits of any trade agreement, Korea’s effort to reduce the trade imbalance took place before any modifications to the Korea-U.S. Free Trade Agreement (KORUS FTA) become operational.  Because the revised agreement already contains provisions amending the auto section of KORUS, the Trump Administration should exempt South Korea from any possible higher tariffs that might be considered as part of the Section 232 investigation into the national security implications of imported autos and parts, similar to the assurances and relief already given to other major auto producing nations, including Japan, the European Union, Canada, and Mexico.

Phil Eskeland is Executive Director for Operations and Policy at the Korea Economic Institute of America. The views expressed here are his own.

Photo by Kent Lins’ photostream on flickr Creative Commons.

[1] Quarterly data on services trade is only available from 2013 onward.