Why US trade deficit with China, South Korea and Japan must be making Pyongyang very happy
Donald Kirk says the US’ need for teamwork to tackle North Korea tempers its ability to exert pressure over the billions of dollars in trade deficits, a preoccupation that leaves the regime free to pursue its weapons programme
All the talk over what to do with North Korea overlooks one problem, to which people are not paying much attention. That is, the yawning trade gap between the US and all its leading trade partners. It’s a lot easier to grasp the significance of a North Korean nuclear warhead attached to a long-range missile than to care whether China’s exports to the US last year exceeded its imports from there by US$347 billion.
The imbalance with China is by far the most distended of any trade gap in the history of commerce between nations, and it’s a bargaining ploy in the “Great Game” over getting North Korea to give up its nuclear programme.
US President Donald Trump, when he met President Xi Jinping in Mar-a-Lago, wasn’t nearly so insistent about cracking down on China for unfair, inequitable trading practices as he was during his election campaign. In those days, Trump spoke darkly of imposing protective tariffs on China – a punitive measure that could upset the global trading system as China slapped tariffs on goods from the US.
The argument against protective tariffs would seem overwhelming: goodbye to free trade. Welcome to trade wars – and real wars – and forget about China pressuring North Korea to give up its nuclear and missile programmes.
Therein lies the inherent bargain: “Do something about your pain-in-the-neck ally and protectorate, make a few gestures about reducing your trade surplus – and we won’t do anything to hurt you.”
Why would I call China a currency manipulator when they are working with us on the North Korean problem? We will see what happens!
— Donald J. Trump (@realDonaldTrump) April 16, 2017
The same equation applies to the US relationship with South Korea. US Vice-President Mike Pence let loose a salvo of tough talk against North Korea when he visited the Demilitarised Zone and then issued a lengthy statement standing beside acting South Korean President Hwang Kyo-anh. Stuff about “all options are on the table” and “North Korea would do well not to test our resolve” – rhetorical flourishes that came close to threatening a pre-emptive strike against the North’s nuclear and missile sites.
But the next day, talking to the American Chamber of Commerce, Pence came out with a broadside against South Korea – specifically, the Korea-US Free Trade Agreement that has been around for more than five years. In fact, in March, on the fifth anniversary of the agreement, I attended a talkfest in which Koreans and Americans were singing its praises.
Not Pence. While it has opened the doors to a few thousand more American car imports, among other items, it has been even better for Korean manufacturers – their exports to the US are at least twice what they were when the deal was signed.
The “hard truth”, Pence told the assemblage of suits before flying to Japan, is that barriers are still in place and “we have to be honest about where our trade relationship is falling short”.
To be honest, total two-way trade between the US and Korea last year came to US$69.9 billion, of which US$42.3 billion consisted of Korean exports, bringing the US trade deficit to $27.6 billion.
That’s a lot less than the US$69 billion deficit with Japan, which ranks a distant second to China in that department, but in terms of percentage of two-way trade, it is worse than Japan. US-Japan trade last year totaled US$196 billion.
How much pressure, though, can the US exercise on Seoul to redress the trade imbalance when the two countries have to coordinate on defence against North Korea? And will the US have any leverage at all after the presidential election on May 9?
The winner in all likelihood will be a liberal or progressive with whom US generals and diplomats have to be extremely careful, so as not to upset the US-Korean alliance. Will Washington get really tough on trade while also urging Seoul to stick to its guns against North Korea?
The same questions might be asked about US relations with Japan, where rightist Prime Minister Shinzo Abe is all for building up militarily and keeping US bases on Okinawa, against popular resistance.
Is Abe interested in cutting down that trade surplus with the US? No way.
Nor are the South Koreans, nor the Chinese, if they can help it. North Korean leaders must be delighted – allies scrapping over billions of dollars while they go on testing missiles for shooting warheads into the lairs of their enemies.
Donald Kirk is the author of three books and numerous articles on Korea