For most of the ongoing media coverage involving the pending US-South Korea FTA (free trade agreement), the subject of automobiles, agricultural exports and meat products has filled the headlines. So we decided to examine steel products to better understand why this area of bilateral trade between the two countries has gone largely unreported. First, consider the following facts with regard to US-Korean imports/exports as they relate to steel and steel products:
- S. Korea is the 4th largest source of overseas steel products coming to the US and in fact has overtaken China this year in actual volume
- S. Korea is the 7th largest US trading partner overall (see chart below reproduced from the US Census Bureau):
- The US currently runs a $7.7 billion trade deficit with Korea
- And, perhaps little known, the US runs what we call a “steel product trade deficit of over $747 million, or close to 10 percent of the overall US-S. Korea trade deficit (Steel products include all iron and steel items listed with the two digit HTS codes 72 and 73)
Source: USA Trade Online
So, given that steel represents 10 percent of the overall US-S. Korea trade deficit and that Korean steel imports now top China steel imports, why do media accounts pay such little attention to steel? In short, we aren’t sure. But the official USITC analysis of the agreement (found here in its entirety) U.S. Korea Free Trade Agreement: Potential Economy-Wide and Selected Sectoral Threats discusses potential export increases on the part of the US in terms of agricultural exports (e.g. grains, fruit, vegetables), meat products, machinery, electronics, and transportation equipment and motor vehicles and parts, “would likely experience relatively large increases, primarily as a result of small tariff changes to large pre-existing trade flows, according to the report. In addition, pharmaceuticals and medical devices “would likely also experience increased exports as a result of FTA-induced improvements in the regulatory environment in Korea. The report makes no mention of increasing steel exports, despite objections raised by steel industry participants, “The Industry Trade Advisory Committee on Steel (ITAC 12), whose members include U.S. producers of steel products, stated in its report on the agreement that it strongly objects to the new AD-CVD provisions, and asserts that they could weaken U.S. trade law, threaten to politicize the AD-CVD process, and set a dangerous precedent for future FTAs.
On the flip side, looking at imports, the ITC report identifies textiles, apparel, leather products and footwear as categories that will grow in terms of US imports due to the reduction of US tariff rates. Again, no specific mentions of steel. NAM (National Association of Manufacturing) has come out in support of the FTA.
Call us crazy, but it would seem to us that any FTA must examine the aggregate surplus/deficit situation and include provisions to specifically improve the US’ overall trade position. Perhaps a 1-2 percent volume improvement in exports of agricultural products or meat will do the trick, but if steel products represent 10 percent of the current account deficit, we’d expect to see some specific provisions addressing that sector.
What do you think?