For more than 60 years, Korea and the United States have been allies and friends. A cornerstone of this relationship is the close trade ties between the two nations. Over the past five years these ties have grown ever stronger through the Korea-U.S. Free Trade Agreement (KORUS FTA).
However, in recent months, there has been pointed criticism of the trade agreement and short-sighted claims that an imbalance in the trade of goods, only benefits Korea. This narrow examination of data distorts the true picture of the significant positive impact of the KORUS FTA on the market in both the United States and Korea. In a recent op-ed in The Hill newspaper, renowned economists Gary Hufbauer and Euijin Jung of the Peterson Institute for International Economics posit that trade imbalances are the wrong metric for measuring the success or failure of a trade agreement. Rather, looking at the increase in the total volume of two-way trade and foreign direct investment (FDI) reveal the full impact of a trade agreement.
In recent years, global trade has slowed. Between 2011 and 2015, global trade in goods was down 10 percent, while U.S.-Korea trade was up 15 percent over the same period. As a result, when examining two-way trade between the U.S. and Korea, in conjunction with Korean FDI in the United States, it becomes apparent that the KORUS FTA is on solid footing. In 2015, total U.S. trade with Korea topped $150 billion. For the United States, services exports to Korea continue to be a strong area of growth, up 34.1 percent to an estimated $22.4 billion in 2015, compared to $16.7 billion in 2011. Between 2015 and 2016 the U.S. deficit in goods trade shrank by 2.5 percent. While the U.S. has a $27.5 billion deficit in the trade of goods with Korea, the trade in services alone creates a $14.1 billion trade surplus, thus creating balanced trade. It is important to note that overall, services comprised 77.6 percent of the United States’ GDP in 2015 and is one of its strongest industry sectors globally.
The health of the KORUS FTA and trade between the United States and Korea can be further demonstrated by the amount of FDI Korean companies are pouring into the United States. Since the implementation of the KORUS FTA, Korean companies have invested over $40.1 billion in the U.S. and created more than 45,100 American jobs. Korean investment in the United States grew 2.6 times in the three years following implementation of the KORUS FTA compared to the three years before its implementation. The jobs created by these investments are high quality, paying on average $91,700 per year. Korean companies see many opportunities in the United States and their investments show a commitment to a strong U.S.-Korea alliance for many years to come.
Thanks to the KORUS FTA, almost 95 percent of tariffs on goods and services have already been eliminated in nearly every industry sector. This market-opening benefits not only the companies that have taken advantage of significant tariff reductions and eliminations, but also their supporting industries. For example, a 20 percent tariff on pork products was eliminated over three to five years, resulting in an increase in exports of U.S. pork products to Korea. This impacts the entire pork industry from pork processors to farmers to veterinarians to feed producers to feed growers to farm equipment suppliers and so on down the supply chain.
The success of KORUS FTA in both the United States and Korea should serve as an example of how nations can grow their economies and strengthen alliances through open and fair trade.