In October of last year, Congress passed a new trade deal with South Korea that went into effect in March of this year. This was an agreement originally negotiated by the Bush administration in 2007. It was renegotiated by the Obama administration to delay for five years reductions in tariffs on South Korean cars and to give the U.S. broader access to the South Korean auto market. The president hailed it as a big coup for American workers. Because South Korea is more than 15 times as densely populated as the U.S., I predicted it would have the opposite effect and that our trade deficit with South Korea would worsen.
With this morning’s release of trade data for the month of June, we now have four months of this new trade deal under our belts, so it’s time to begin evaluating the effectiveness of this deal. So far, as I predicted, the results aren’t good. In the four months that this trade deal has been in effect, we’ve racked up a trade deficit with South Korea of $5.45 billion, an 18% increase over our trade deficit during the same four months last year. That’s an annualized trade deficit of $16.35 billion. Only once, in 2004, was our trade deficit with South Korea worse.
Reuters columnist David Cay Johnston went to South Korea to see for himself whether or not the trade deal is working. Check out his report and be sure to watch the embedded video. Mr. Johnston is trying to spot American-made cars. However, I’d like you to pay attention to something else – the volume of traffic. Here’s the report:
Mr. Johnston reports that he is standing on the busiest street in downtown Seoul. Seoul is the largest city – the capital city – in a nation that’s fifteen times as densely populated as the U.S. Yet, traffic is flowing very smoothly because there’s very little of it. In fact, in the scene in which Mr. Johnston is standing on the corner, watching for an American-made car, only one car passes by every few seconds. Now imagine the same scene on the busiest street of any major American city. The streets would be absolutely clogged with traffic. Mr. Johnston would need a team of people to count the cars.
The problem is not so much that such a small fraction of cars in South Korea are American-made, but that there are so few cars – relative to the size of their population – regardless of where they’re made. The South Koreans have free access to our vibrant auto market and all we get in return is, supposedly, free access to a market that practically doesn’t exist. On a per capita basis, South Koreans own far fewer vehicles because there’s no room for them. It’s absolutely impossible to have anything other than a large trade deficit with a nation with such low per capita consumption. We come to the trading table with vast, healthy markets and they come to the trading table with nothing to offer but a bloated labor force hungry for work.
In 2011, we imported 430,000 vehicles from South Korea, and exported only 22,000 to them. Through June of this year, we’ve exported only about 12,950 vehicles to South Korea – no significant improvement. Someone explain to me how surrendering the production of over 400,000 vehicles per year does anything other than eliminate approximately 100,000 jobs.
Four months isn’t a lot of data. I’ll continue to follow and report on this, but so far the results are exactly what I predicted – bad.