Collateral Damage

South Korea could get sideswiped by Trump fixation on China
November 2, 2017 7:00 AM

Last week I was in Seoul for a couple of events focusing on trade. Needless to say, there was considerable unease about the Trump administration in general, and in the area of trade policy, its threat to abrogate the KORUS free trade agreement.

What is less appreciated is how South Korean interests could be impacted by trade policies motivated by concern over China. My colleague Chad Bown has been doing fascinating work on the Trump administration's implementation of "contingent" or "process" protection. The most well-known of these instruments are antidumping (AD) and countervailing duty (CVD) cases. What sets the Trump administration apart are two things: first, its willingness to employ seldom used parts of US trade law, such as global safeguards and the Section 232 national security provision; and second, its willingness to self-initiate cases rather than waiting for an import-competing firm to complain. Both characteristics matter: The global safeguard and national security provisions require less stringent conditions than AD or CVD to impose protection, and historically speaking, the likelihood of protection being imposed is higher in government-initiated cases.

The share of South Korean exports to the US subject to these protective barriers would rise to 12 percent—a share even higher than that of China!

Chad finds that if all the cases that have been initiated in Trump's first 100 days result in protection, the share of US imports subject to special protection through these mechanisms will nearly double, from 3.8 percent to 7.4 percent.

Share of US imports covered by barriers imposed under trade laws

South Korea would be the worst affected country, with the share of South Korean exports to the United States subject to these protective barriers rising to 12 percent—a share even higher than that of China! The reason is that South Korea so happens to be a significant exporter of steel, solar panels, and washing machines—products that the Trump administration, spurred by concerns over China, has decided to target.

Projected increased import coverage of Trump's "100 days" trade policy actions

A decision in the steel case was expected in June, but has been delayed due to push back from industries that use the product. A decision on solar panels is due in January, and washing machines in February.

In short, there are clouds on the horizon for US-Korea trade relations, even if the two countries can reach a mutually acceptable accommodation in the KORUS renegotiation, an outcome that is by no means guaranteed.

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