By David Cay Johnston
SEOUL, July 31 In March, the United States and
South Korea implemented a Free Trade Agreement ()
that President Barack Obama touts as more significant than the
last nine such agreements combined. He also said it was central
to his goal of doubling American exports within five years.
I think the president suffers from irrational trade
exuberance, a view reinforced by my reporting in this city of 10
This deal is likely to turn out badly for American taxpayers
and workers, especially autoworkers.
The president predicted 70,000 American jobs would be
created () as U.S. exports to
South Korea grow faster than imports.
That would be terrific for generating taxes and reducing
demand for government services like food stamps, which have
become the sole income for about 6 million Americans.
But - based on previous major trade deals, the details of
this one and a host of Korean business and cultural barriers - I
think a much more likely scenario is the destruction of more
than 150,000 American jobs over the next few years, as projected
() by the Economic Policy
Institute, a Washington research organization that advocates for
low- and middle-income workers.
The president's optimistic statements, made in December,
drew on projections by the U.S. International Trade Commission.
It predicted that U.S. exports to South Korea would grow at
least 52 percent more than imports, creating tens of thousands
of American jobs. A March update predicted that eventually
exports of U.S. cars to South Korea will "likely increase
This is the same agency that predicted that liberalized
trade with China would result in a $1 billion annual trade
deficit for the United States. The actual 2011 deficit: $295
And remember NAFTA? The United States ran a $1.6 billion
trade surplus ($2.6 billion in today's dollars) with Mexico in
1993, the year before NAFTA. Last year, the United States ran a
$64.5 billion deficit.
The United States has consistently run trade deficits with
South Korea - more than $13 billion last year, according to the
U.S. Census Bureau. And, of course, the trade agreement has only
been in place a few months. But it is worrisome that the deficit
for April and May, after the agreement took effect, soared 63
percent compared with a year earlier.
The U.S.-South Korea trade agreement was reached in 2007,
but implementation was held up by objections from some American
companies. Notably, Ford Motor Co complained to Congress
and in advertisements that South Koreans who bought Fords were
hit with tax audits. Ford said the final agreement is much
improved, but still not ideal.
In Seoul, local people told me that buying an American-made
car risked opprobrium from employers and neighbors.
In three days in Seoul, as the video accompanying this
column shows (), I found very few
American-made cars. Three, on a showroom floor, were Toyotas
built in Ohio. On the streets, I counted a half dozen Chrysler
vans, a similar number of Ford sedans and one Jeep but not a
single American luxury car. I also saw a smattering of cars with
Chevrolet nameplates, but they were built locally by the old
Daewoo, now called GM Korea.
The foreign cars I spotted most often were Mercedes-Benz
, BMWs and Bentleys, brands that
seem to resonate more strongly with South Koreans eager to
display their affluence.
That fits with the official South Korean data on auto sales.
More than nine out of 10 cars sold here are made in South Korea.
European luxury cars, sold under a European Union free trade
agreement signed last year, far outsell any Detroit cars. Last
year, American-made cars sold in the thousands, a fraction of
one percent of car sales in South Korea. In June the
best-selling American model was the Ford Explorer, with just 109
sold, less than a tenth of one percent of vehicles sold that
In the United States, sales of Hyundai Motor Co
and Kia Motors Corp, which are owned by the same
company, grew 26 percent last year and accounted for every 11th
new car sold.
Sean McAlinden, chief economist for the nonprofit Center for
Automotive Research in Ann Arbor, Michigan, which studies how
public policy affects the industry, ticked off all sorts of
non-trade barriers to American-made cars in South Korea. "There
aren't going to be any more American auto industry jobs because
of this trade agreement," he said.
Indeed, a report by the Congressional Research Service ()
details subtle trade barriers.
Since 2000, the United States has lost almost a third of its
manufacturing jobs. Those 5.5 million jobs are the equivalent of
eliminating every non-farm job in Michigan and Iowa plus
metropolitan Valdosta, Georgia, a serious crisis for blue-collar
President Obama, the White House told me, continues to
believe that his trade policies will mean more American jobs,
including manufacturing jobs. That sounds good but lacks factual
The opening of Hyundai and Kia assembly plants in the United
States may seem like a benefit to the U.S. economy. But
taxpayers covered much of the cost. And the value-added work in
cars comes less from assembly than from making precision
high-strength steel parts, especially in the drive train. To the
extent that parts are made in South Korea and shipped to the
United States for assembly, the added economic value tends to
One caveat: The way U.S. economic statistics are calculated
may miss where value is added in manufacturing cars and other
items because of subtle changes in licensing intellectual
property, supply chains and other factors, as the Congressional
Research Service explained in a report ()
Jung Jong-yung, America division director at South Korea's
Ministry of Knowledge Economy, told me to expect more jobs in
both countries, especially four years from now and beyond.
Maybe. But the evidence so far suggests this deal will be a
boon for South Korea and another economic albatross for America.