Mr. Lighthizer’s Managed Trade – WSJ


The Trump Administration is celebrating its revised trade agreement with South Korea, and the news is how little the deal will change. The U.S. wisely backed away from threats to blow up the pact with its sixth largest trading partner, but the price is more politically managed trade.

Donald Trump

once called the 2012 bilateral pact “horrible” and threatened to withdraw if Seoul refused to renegotiate. But after the melodrama, the new pact’s main revisions are a change in the terms of trade for vehicles and a quota on Korean steel exports to the U.S. Neither is likely to make much difference to the U.S. trade deficit with South Korea, which is supposedly the goal of this exercise.

The biggest changes are in vehicles trade, for good and ill. The good news is a doubling of the annual U.S. car and truck exports that are exempt from South Korean safety standards per manufacturer to 50,000 from 25,000. U.S. standards will now be enough. Ford and

General Motors

exported fewer than 10,000 vehicles to South Korea in 2017, according to Reuters, so the problem has been as much consumer preference as trade barriers.

The Trump Administration is also claiming victory for extending the 25% U.S. tariff on Korean truck exports for another 20 years through 2041. This is the upside down world of Trump trade logic in which punishing American consumers with higher prices is a virtue. The tariff had been scheduled to phase out by 2021. Korean companies will probably evade the tariff by building more trucks in the U.S. and exporting the parts instead.

The U.S. also won some concessions on South Korea’s onerous customs clearances, which have been a protectionist tool. But trade negotiator

Robert Lighthizer

failed to win a new opening for U.S. farm goods or other exporters. By focusing so much on autos and steel, Mr. Lighthizer missed an opportunity to expand trade in services, where the U.S. runs a $12.3 billion annual surplus with South Korea.

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Mr. Lighthizer is also trumpeting Seoul’s acceptance of a 30% cut in its steel exports to the U.S. This is a defeat for American steel users who are already paying higher prices despite the country-specific exemptions from Mr. Trump’s world-wide 25% tariff on imported steel. Reducing supply can have the same effect as a tariff in raising domestic prices.

This is another step toward politicians managing trade flows, as if Mr. Lighthizer in his wisdom can judge the right supply for tens of thousands of buyers and sellers. This seems to be the U.S. trade rep’s household remedy. The U.S. bludgeoned Mexico into accepting sugar quotas, and he’s now doing the same with steel suppliers around the world.

The creation of the World Trade Organization was supposed to put an end to these so-called voluntary export restraints. But Mr. Lighthizer negotiated them with Japan in the 1980s, and he wants to try again. His problem is that global business supply chains are more complex than 30 years ago, trade is dominated by intermediate goods, and the U.S. is no longer as dominant a market for finished goods. Negotiated quotas will damage U.S. competitiveness and do little to alter the trade balance.

In that sense the Korean renegotiation is less a triumph than lost opportunity. By focusing on trade in industrial-age goods, the U.S. missed a chance to open South Korea further to the services and products of the future. But at least the Administration didn’t blow up a mutually beneficial pact with an important ally, and for that we can be grateful.

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