U.S. and South Korea Reach Trade Deal

The United States has agreed to revise a six-year-old free trade agreement that endowed American automakers with extra benefits in return for exempting South Korean steelmakers from heavy tariffs imposed by President Trump.

"We stroked the deal to revise Korea-U.S. FTA in principle. There will be no additional opening of our agricultural market," said Korean Trade Minister Kim Hyun-chong in a press briefing Monday in Seoul. "We also removed two uncertainties by getting tariff exemption for our steel and striking the FTA deal. It will help our companies have stable business in the U.S."

As per the agreement, South Korea has compromised by doubling the number of U.S. vehicles that can be imported without meeting Korean safety standards to 50,000 units. South Korea has also limited its metal exports to the U.S. to roughly 2.7 million tons a year. For its part, the U.S. extended its grace period for non-tariffs on South Korean pickup trucks by an additional 20 years, or until 2040.

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"Ultimately this is a good agreement for both sides," said Troy Stangarone, senior director of congressional affairs and trade at the Korea Economic Institute of America in Washington. "It looks like everybody got a little bit of something out of this, and with talks with North Korea coming up, it takes what could have been a contentious issue off the table and puts the two allies basically back lockstep on all major issues in the alliance."

The U.S. also exempted South Korea from an additional 25% tariffs on steel, which the U.S. has imposed on many nations, except Canada, Mexico, the European Union, Australia, Argentina and Brazil. However, shipments of the metal to the U.S. exempt from the new tariffs will be limited to a quota of about 2.68 million tonnes a year, or 70% of the annual average between 2015 - 2017.

This deal is particularly important because leaders of both countries are planning to meet with North Korean leader Kim Jong Un. It is critical for the success of any negotiation with North Korea that the U.S. and South Korea present a united front. South Korea's trade surplus with the United States was about $18 billion last year, down from $23 billion in 2016, which is also why locking down this deal was important, especially considering that the American market has been slow lately.

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Trump has regularly threatened to cancel several trade deals like this if he didn't see major changes. However, this is incongruent with his willingness to accept very modest or minimal revisions after demanding a wholesale overhaul. This hints that other trading partners, including Mexico and Canada, may be able to satisfy his demands with smaller concessions.

Still, this deal is just a small battle in a much larger war. "Lifting a cap that we weren't hitting anyway I think will have minimal impact," said Bernard Swiecki, a senior automotive analyst at the Center for Automotive Research. "This is not just an American problem. Having been to Korea many times, overwhelmingly every car that you look at is Korean. It's very much a homogeneous market."