President Obama recently signed the KORUS FTA trade deal with South Korea. The advantages for S. Korea are obvious, but what impact will it have on the U.S. economy, and how will it affect relations with the rest of Asia?
The deal lowers trade barriers for both sides. President Obama boasts it will boost the domestic auto industry and support tens of thousands of American jobs by lowering S. Korean tariffs on American cars. The other side of the story, however, is that in five years the 2.5% tariff on Korean cars sold in the U.S. will be lifted. The real effect on the economy hinges on how many autos American manufacturers can sell in S. Korea, compared to the potential hike in Korean models imported here. While the U.S. manufacturers generally favor the deal, some of the big unions fear that it will actually result in a loss of jobs in their plants.
American autos sold in S. Korea will still have to meet their safety requirements, something which has stood in the way in the past. Asians prefer reliable, very small, fuel-efficient cars (to the extent that the Honda Civic is considered too big and is being discontinued in Japan). Quality issues continue to plague domestic models, with The Big Three having 50% more reported serious problems than Asian models. American automakers have shown little love for developing this type of vehicle, which is the reason that there are so many Asian cars on our roads. In 2009, Asian imports were nearly 50% of all light vehicles sold here.
Other issues, including the high subsidies paid to farmers in S. Korea may make this deal's passage through congress less than certain. Beef exports (Korea has been reluctant to accept American beef since the mad-cow scare) is a sticking point for meat producers in the mid-west states, and the tariffs on pork products won't be dropped until 2016. S. Korea produces a surplus of rice, and would like to protect itself from foreign competition to keep prices up.