Features
1 Apr 20

2018 US-Korea Trade Agreement: worth it?

When the current US President called the existing trade agreement with Korea (or “KORUS”) a “horrible deal” in 2017, he promised to cancel the deal, but quickly changed his mind into reviewing the agreement, which happenend in 2018. This came at a period when North-Korea was threatening to ramp up its nuclear activities and China’s growth was the biggest cause of concern for the US.

KORUS, V.2018

A seemingly important part of the deal – and heavily promoted by the US administration – was the import cap for vehicles that didn’t meet the Korean safety standards. This cap was raised from 25K units to 50K units for cars imported into Korea from the US, that only had to meet US safety standards. Another part of the agreement was the extension of the so-called “chicken tax” for another 20 years (until 2041). This oddly called US tax keeps any country from importing pickup trucks in the US. Ever wondered why Toyota or VW don’t plug into the highly successful pickup market in the US? Chicken tax indeed.

The true core of the revised KORUS however was all about steel. Prior to the agreement, the US raised import taxes on foreign steel to 25% and those on imported aluminum to 10%. Korea agreed to cut its steel export to the US by 30% in exchange for an exemption from these taxations.

In exchange, the US promised to work on peace agreements and denuclearization of North-Korea, which has led to fairly theatrical appearances of the US President and North-Korea’s Supreme Leader, but not to peace between North-Korea and South-Korea.

Outcome

Firstly, on the import cap. None of the US manufacturers hit the old 25K import cap to begin with, as Koreans don’t seem to like US cars. They do like European cars, however, especially Mercedes (78.133 vehicles sold in 2019) and BMW (44.191 vehicles sold in 2019). Performance of US brands in Korea is poor: Jeep/Chrysler with 10.251 units, followed by Ford/Lincoln (8.737 units). Other US brands are importing less than 5000 cars per year. This excludes locally produced GM/Daewoo vehicles. 2020, the year of corona, obviously impacts cars sales massively, but the Europeans are holding position, Mercedes even coming close to SSanyoung’s (the country number 4) volumes.

Next, import from Korea into the US. GM, that has acquired the Daewoo operations in 2002, is exporting various models into the US. Some of them are produced (Buick Encore, Chevrolet Trax, Chevrolet Trailblazer), others are assembled (Chevrolet Malibu, Chevrolet Spark) in Korea. GM’s Korean export volumes have gone up from under 100K units in 2014 to over 185K units in 2019, but those came at a heavy price: GM has to deal with extremely difficult trade unions and even had to threaten to close its business…

In the meanwhile, Hyundai/Kia are importing 670K vehicles into the US, where the brands have improved their image and established solid local production sites and dealer networks.

Horrible deal?

All in all, the revised KORUS has not delivered. In the context of increased steel cost, US cars have become more expensive, Korean cars are gaining more traction in the US and import of US vehicles in Korea is negligible. And there’s still no peace agreement with North-Korea.

Authored by: Yves Helven