President Trump has instructed advisers to prepare a withdrawal from the United States’ free-trade agreement with South Korea, several people close to the process said, a move that would stoke economic tensions with the U.S. ally at a time both countries confront a crisis over North Korea’s nuclear weapons program.
While it is still possible Trump could decide to stay in the agreement in order to renegotiate its terms, the internal preparations for terminating the deal are far along and the formal withdrawal process could begin as soon as this coming week, said the people, who spoke on condition of anonymity.
A number of senior White House officials are trying to prevent Trump from withdrawing from the agreement, including national security adviser H.R. McMaster, Defense Secretary Jim Mattis, and National Economic Council Director Gary Cohn, these people said.
A White House spokeswoman said “discussions are ongoing, but we have no announcements at this time.”
South Korea elected a new president, Moon Jae-in, in May, and Trump has been frustrated that Moon is not willing to accept the initial U.S. trade demands, several trade experts said. Foreign leaders at first worked hard to try and build strong relations with Trump, but there has been a marked change in recent months with numerous leaders standing up to his brand of nationalism.
Trump is “playing with fire,” said Gary Schmitt, co-director of the Marilyn Ware Center for Security Studies at the American Enterprise Institute. “There is a new president in South Korea whose instincts probably are to be probably not as pro-America as his predecessor and now you are putting him in situation where he has to react. In fact, what you need now is as much cooperation as possible.”
One reason top White House advisers are trying to stop Trump from withdrawing from the South Korea free trade agreement is because they do not want to isolate the government in Seoul at a time when North Korea has become increasingly adversarial with its missile program, testing nuclear weapons and firing missiles over Japan in a way that has alarmed the international community.
If Trump withdraws from the agreement, he could try to force South Korea to import more U.S. products with little to no import restrictions, something he believes will help U.S. companies and workers. South Korea could also decide to refuse any discussions with Trump, kicking off a trade war between the countries.
The trade agreement was signed in 2007 and went into effect in 2012.
Withdrawing from the deal could lead to a large increase on tariffs levied against products the United States imports from South Korea, such as electronics, cellphones and automobiles. South Korea would also immediately start charging very high tariffs on goods and services imported into its country. Chad Bown, who served as an economist in the White House during the Obama administration, said the tariff the U.S. government charges against many Korean imports would rise from 0 to 3.5 percent. The tariff South Korea charges against U.S. imports would rise from 0 to almost 14 percent, potentially making it harder for U.S. companies to find buyers there.
Trump’s consideration of starting the process of pulling out of the deal was first reported by Inside U.S. Trade.
In July, U.S. Trade Representative Robert E. Lighthizer revealed some of Trump’s complaints with the South Korea deal during a “special session” that was called in an attempt to begin renegotiations.
Lighthizer said at the time that since 2012, the U.S. “trade deficit in goods with Korea has doubled from $13.2 billion to $27.6 billion, while U.S. goods exports have actually gone down. This is quite different from what the previous Administration sold to the American people when it urged approval of this Agreement. We can and must do better.”
Trump has expressed widespread frustration that he has not been able to follow through on campaign promises to rip up trade deals that he argues have disadvantaged U.S. workers. He came close several months ago to starting a withdrawal from the North American Free Trade Agreement, but he stopped short after intense lobbying by advisers and the business community.
But in recent days he has said he might still withdraw from NAFTA, accusing Mexico in particular of refraining to offer concessions during negotiations.
South Korea is the sixth-largest goods trading partner with the United States, accounting for $112.2 billion in two-way trade last year, according to the U.S. trade representative. U.S. companies exported $42.3 billion in goods to South Korea and imported $69.9 billion in goods last year, leaving a trade deficit of $27.7 billion.
Trump has said many countries that export more goods to the United States than they import are fleecing U.S. workers and consumers.
The U.S.-South Korea free-trade agreement, known as KORUS, allows the United States to terminate it after six months if it wishes to. So if Trump signed a letter to withdraw from the agreement, the deal would effectively be terminated in March 2018. KORUS was approved by Congress, but Trump could to pull out of the agreement on his own.