- By Phil LevyPhil Levy is Senior Fellow on the Global Economy, The Chicago Council on Global Affairs, and teaches strategy at Northwestern University’s Kellogg Schoool of Management.
As North Korea escalates its nuclear threat, many foreign-policy minds will set to work thinking about the best possible response. For the moment, though, think about the problem a different way — what would be the worst possible response?
Here’s a possibility: The United States could respond by imposing economic sanctions on its ally, South Korea. It would be a deliberate case of friendly fire in the looming conflict.
This might sound utterly absurd, but it is reportedly the policy under consideration by the Trump administration. The president is contemplating a withdrawal from the 2012 free trade agreement between the two countries (known as KORUS) and may act this week.
To be fair, the withdrawal was under consideration before Kim Jong Un’s latest nuclear test. But that doesn’t make it any less misguided. The alliance with South Korea and the faceoff with the North Korean regime is hardly new, after all, dating back over 65 years. This undermining of a key alliance recalls the first days of the Trump administration, when the president withdrew the United States from the Trans-Pacific Partnership. That agreement heavily revolved around trade with Japan, another key regional ally. Torpedoing the KORUS agreement now would only do further damage to U.S. standing in the Asia-Pacific region.
It is difficult to tell the exact impetus for the KORUS withdrawal idea. There are several candidates. The United States runs a trade deficit with South Korea. This agitates the Trump administration, although economists neither attach much significance to a bilateral trade deficit nor accept any strong link between deficits and trade policy. The administration tried to demand a renegotiation of the agreement last month, but the talks went poorly, as the South Koreans (understandably) asked for a study to find out whether there was any link between KORUS and the trade deficit.
Oddly enough, the administration had earlier decided to back off its strident criticism of China when President Donald Trump drew a connection between China’s support in dealing with North Korea and U.S. lenience in commercial policy. It is hard to see the United States rewarding China for its cooperation against North Korea and not accommodating South Korea, where the United States has almost 25,000 troops stationed, facing north.
Stranger still is that South Korea has already suffered economically — for cooperating with the United States on missile defense. South Korea had agreed to host the Terminal High Altitude Area Defense system (THAAD), which is designed to shoot down ballistic missiles. China reacted poorly and reportedly instructed tour operators to stop sending Chinese travelers to South Korea (Chinese tourists accounted for almost half of South Korea’s tourist visitors last year). It seems particularly perverse that, after this, the United States would choose to hit South Korea gratuitously.
Given the enormous foreign policy disadvantages to a KORUS withdrawal, one might be tempted to look for an economic motivation. In fact, the economic arguments tilt just as heavily against. If nothing else, without KORUS, the United States would revert to applying relatively low tariffs on imports from South Korea, while South Korea’s tariffs on U.S. goods would be significantly higher.
This would truly be a self-inflicted wound. The Trump administration sometimes seems to believe that threatening to blow up a trade agreement will make partners more amenable to talking. An unfortunate, likely alternative could be that when the United States trains its commercial fire on them, our erstwhile allies treat it as a hostile act.
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