[CTC] Trump preparing withdrawal from South Korea trade deal, a move opposed by top aides

[Arthur Stamoulis]

https://www.washingtonpost.com/news/wonk/wp/2017/09/02/
trump-plans-withdrawal-from-south-korea-trade-deal/?hpid=
hp_hp-top-table-main_wb-skorea-2pm%3Ahomepage%2Fstory&utm_term=.23981708173a

Trump preparing withdrawal from South Korea trade deal, a move opposed by
top aides


President Trump has instructed advisers to prepare to withdraw the United
States from a free-trade agreement with South Korea, several people close
to the process said, a move that would stoke economic tensions with the
U.S. ally as both countries confront a crisis over North Korea’s nuclear
weapons program.

Withdrawing from the trade deal would back up Trump’s promises to crack
down on what he considers unfair trade competition from other countries,
but his top national security and economic advisers are pushing him to
abandon the plan, arguing it would hamper U.S. economic growth and strain
ties with an important ally. Officials including national security adviser
H.R. McMaster, Defense Secretary Jim Mattis and National Economic Council
director Gary Cohn oppose withdrawal, said people familiar with the process
who spoke on the condition of anonymity to discuss internal White House
deliberations.

Although it is still possible Trump could decide to stay in the agreement
to renegotiate its terms, the internal preparations for terminating the
deal are far along, and the formal withdrawal process could begin as soon
as this week, the people said.

A White House spokeswoman said “discussions are ongoing, but we have no
announcements at this time.”

Rolling back free-trade agreements was a top priority of some of the senior
members of the Trump administration who have left in recent weeks,
including former chief strategist Stephen K. Bannon. Bannon often found
himself outmaneuvered internally by Cohn and others who aligned with
business groups to warn of the economic consequences of withdrawing from
trade deals, but Trump’s pursuit of terminating the South Korea deal
appears to demonstrate the president’s personal commitment to reverse U.S.
policymakers’ long-standing pursuit of free trade.

Trump has threatened before to withdraw from trade pacts only to pull back,
but his threat to South Korea comes as the two countries look to create a
united front against North Korea at a time when military tensions are at
their highest level in years.

As if to underscore the point, North Korea said Sunday that it
had developed a more advanced nuclear bomb with "great destructive power,"
releasing photos of Kim Jong Un inspecting what it said was a hydrogen bomb
that could be attached to a missile capable of reaching the mainland United
States.

All the components of the "H-bomb" were "homemade" so North Korea could
produce "powerful nuclear weapons as many as it wants," the state-run
Korean Central News Agency quoted Kim as saying.

North Korea's latest pronouncement could not be verified. It claimed that a
nuclear test in January last year was of a hydrogen bomb but experts said
the seismic waves generated were consistent with an ordinary nuclear
device, not a thermonuclear one.

The U.S.-South Korea deal, which was reached in 2007 and went into effect
in 2012, reduces trade barriers between the two countries. Proponents say
it gives U.S. companies more access to the wealthy South Korean economy,
but critics charge that South Korea has reaped a greater share of the
benefits of the deal, an allegation Trump has personally echoed multiple
times since his election while calling for changes to the deal.

South Korea elected a new president, Moon Jae-in, in May, and Trump has
been frustrated that Moon is not willing to accept the initial U.S. trade
demands, several trade experts said. Foreign leaders at first worked hard
to build strong relations with Trump, but there has been a marked change in
recent months as numerous leaders have stood up to his brand of nationalism.

South Korean media have been telling trade representatives in Seoul to
stand their ground against the United States in the renegotiations.

“The North Korean nuclear crisis is pushing tension on this divided
peninsula to new highs,” the Korea Times wrote in an editorial. “But that
should be no reason for Seoul to put its economic interests far behind
security matters, weakening its bargaining leverage and playing into the
hands of the U.S. leader, the self-styled ‘artist of the deal.’ ”

Trump is “playing with fire,” said Gary Schmitt, co-director of the Marilyn
Ware Center for Security Studies at the American Enterprise Institute.
“There is a new president in South Korea whose instincts probably are to be
probably not as pro-America as his predecessor, and now you are putting him
in a situation where he has to react. In fact, what you need now is as much
cooperation as possible.”

White House advisers are trying to stop Trump from withdrawing from the
South Korea free-trade agreement in part because they do not want to
isolate the government in Seoul during a perilous time on the Korean
Peninsula. North Korea has become increasingly adversarial with its missile
program, testing nuclear weapons and firing missiles over Japan in a way
that has alarmed the international community.

Wendy Cutler, who was the chief U.S. negotiator for the free-trade
agreement, said the prospect of canceling the deal could not come at a
worse time.

“If not handled carefully, the latest impasse could lead to renewed trade
tension between the U.S. and Korea,” she wrote in the Hill this week. “It
also takes place at a time, after exceedingly threatening North Korean
missile tests, when the bilateral alliance could not be more important.”

South Korea is the sixth-largest goods trading partner with the United
States, accounting for $112.2 billion in two-way trade last year, according
to the U.S. trade representative. U.S. companies exported $42.3 billion in
goods to South Korea and imported $69.9 billion in goods last year, leaving
a trade deficit of $27.7 billion.

Trump and Moon spoke on the phone late Friday, but a readout of the call
provided by the White House referenced only national security issues and
did not mention the escalating trade dispute.

If Trump withdraws from the agreement, he could try to force South Korea to
import more U.S. products with little to no import restrictions, something
he believes will help U.S. companies and workers. South Korea could also
decide to refuse any discussions with Trump, kicking off a trade war
between the countries.

Withdrawing from the deal could lead to a large increase on tariffs levied
against products the United States imports from South Korea, such as
electronics, cellphones and automobiles. South Korea would also immediately
start charging very high tariffs on goods and services imported into its
country. Chad Bown, who served as an economist in the White House during
the Obama administration, said the tariff the U.S. government charges
against many Korean imports would rise from 0 to 3.5 percent. The tariff
South Korea charges against U.S. imports would rise from 0 to almost 14
percent, making it harder for U.S. companies to find buyers there.

The Pentagon referred a request for comment to the Commerce Department,
which did not respond. Trump’s consideration of starting the process to
pull out of the deal was first reported by Inside U.S. Trade.

In July, U.S. Trade Representative Robert E. Lighthizer revealed some of
Trump’s complaints with the South Korea deal during a special session that
was called in an attempt by the White House to begin renegotiations.

Lighthizer said at the time that since 2012, the U.S. “trade deficit in
goods with Korea has doubled from $13.2 billion to $27.6 billion, while
U.S. goods exports have actually gone down. This is quite different from
what the previous Administration sold to the American people when it urged
approval of this Agreement. We can and must do better.”

South Korea, though, has so far refused to renegotiate the trade deal.

In an April interview with The Washington Post, Trump called the agreement “a
horrible deal” that has left America “destroyed.”
<https://www.washingtonpost.com/politics/trump-we-may-terminate-us-south-korea-trade-agreement/2017/04/27/75ad1218-2bad-11e7-a616-d7c8a68c1a66_story.html?utm_term=.f10dbe55d2ed>

“With the ­Korean deal, we terminate and it’s over,” Trump told The Post in
that interview.

Trump has expressed widespread frustration that he has not been able to
follow through on campaign promises to rip up trade deals he argues have
disadvantaged U.S. workers. He came close several months ago to starting a
withdrawal from the North American Free Trade Agreement, but he stopped
short after intense lobbying by advisers and the business community.

But in recent days, he has said he might still withdraw from NAFTA,
accusing Mexico in particular of refraining to offer concessions during
negotiations.

Trump has said many countries that export more goods to the United States
than they import are fleecing U.S. workers and consumers.

The U.S.-South Korea free-trade agreement, known as KORUS, allows the
United States to terminate it after six months if it wishes to. So if Trump
signed a letter to withdraw from the agreement, the deal would effectively
be terminated in March 2018. KORUS was approved by Congress, but Trump
could to pull out of the agreement on his own.

*Anna Fifield in Tokyo and Thomas Gibbons-Neff in Washington contributed to
this report*

Arthur Stamoulis
Citizens Trade Campaign
(202) 494-8826
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