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Govt data show Korea FTA to make trade deficit worse

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The government routinely overestimates the value of trade agreements.  We have bi-lateral trade agreements with 17 countries right now.  If they were so great, why do we accelerate offshoring and trade deficits?

The government’s estimate of the South Korea-United States Free Trade Agreement (KORUS FTA) actually (and inconveniently for them) shows that we will increase our U.S. trade deficit in goods with the world if it passes.

The U.S. International Trade Commission (ITC) made the projection.  They are always too optimistic.  But even under their assumptions, our trade situation gets worse.  They say that our bi-lateral trade in goods with Korea will be a small surplus… which means exports of goods will slightly exceed imports.

But… about 1/2 of the exports from the U.S. to Korea are already being shipped to other countries.  They won’t be new exports.  So Korea is projected by the ITC to cannibalize U.S. exports elsewhere to produce their hoped for surplus, which means our trade deficit in goods with the rest of the world will become worse.  And the trade deficit with the world, including Korea, will become worse.

You will find President Obama say that the KORUS FTA will “support” a large number of jobs.  “Support” of jobs is distinctly different from “creating” jobs.  Because the job creation number is much lower.  And “support” of jobs excludes the jobs lost from new imports.  Obama does not talk about that (neither did Bush).

The KORUS FTA will allow Korea to continue manipulating currency.  It will allow them to keep their 10% VAT tariff and increase it in the future (as other countries have done).  It takes away our sovereignty because it will allow their companies that invest here to sue our federal, state and local governments if laws are passed that interfere with the foreign companies’ profit expectations (like an emissions law or a family leave law that costs them money).

We need a national trade strategy before doing another one of these failed deals that have helpfully caused massive trade deficits.

Todd Tucker has the full report on the ITC numbers here.

2 Responses to “Govt data show Korea FTA to make trade deficit worse”

  1. John B. says:

    How is Korea keeping its 10% VAT any different from American states keeping their sales taxes? The VAT doesn’t just apply to imports; it applies to all goods bought by Korea consumers regardless of their origin.

    The KORUS FTA does not allow Korean companies to sue the federal, state or local governments. In fact, it expressly forbids it. It allows them to file claims in the International Center for Settlement of Investment Disputes, a World Bank arbitration agency. ICSID can find for the plaintiff and require compensation. It cannot overturn any U.S. law. In the history of America’s 12 existing FTAs, ICSID has never ruled in favor of a plaintiff against the US government.

  2. China Watcher says:

    For John B’s benefit: Korea and some 150 other countries rebate their consumption tax on export. When a good of theirs arrives at a US port, we have chosen not to apply any consumption tax of our own. That gives the imported good a clear price advantage. Going the other way, our export (offerings) include the full burden of US taxes; nothing is rebated. When they arrive at foreign ports, they are taxed again. So, our imports are untaxed, and our exports are doubled taxed. No wonder that “free trade” is a loser for us!


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