[Interview] "US Trade Deficit with Korea Surges... Must Prepare for FTA Renegotiation if Trump Returns to Power"

[Insights from US Scholars and Experts] ④
Barbara Weisel, Former USTR Deputy Representative
Current Co-CEO of Rock Creek Global Advisors
US Trade Deficit with Korea Doubled Compared to Five Years Ago
Trump’s Second Term Demanded Concessions to Reduce Deficit
Korea Develops Negotiation Strategies to Address Trade and Economic Security Issues
US Election Will Intensify US-China Trade Conflicts Regardless of Winner
Korea Diversifies Supply Chains and Strengthens Leadership in Key Technologies

Editor's NoteWith the U.S. presidential election just five months away this November, global macroeconomic uncertainties and geopolitical risks continue to persist. The U.S.-China technological hegemony war surrounding advanced industries such as semiconductors and artificial intelligence (AI) is intensifying, and the U.S. has signaled a second trade war by raising tariffs on 'overproduced' Chinese imports. While global financial markets are solely focused on a U.S. Federal Reserve interest rate cut, the timing of the Fed's pivot remains uncertain as the U.S. economy continues to thrive. Countries around the world, including South Korea, are closely monitoring the repercussions of U.S.-China conflicts, U.S. industrial and trade policies, and changes in the macroeconomic environment, seeking appropriate responses. In this context, Asia Economy has planned an interview series covering four sectors?U.S. macroeconomics, trade, China, and semiconductors?featuring interviews with American scholars, experts, and former trade officials to review key issues, prospects, and response strategies. The interview articles will be published in the order of Chris Miller, Professor of World History at Tufts University's Fletcher School; Yasheng Huang, Professor of International Management at MIT Sloan School of Management; David Wessel, Senior Fellow at the Brookings Institution and Director of the Hutchins Center on Fiscal and Monetary Policy; and Barbara Weisel, former Deputy U.S. Trade Representative (USTR).

Barbara Weisel, Co-CEO of Rock Creek Global Advisors · Former Deputy USTR Representative

"The U.S. trade deficit with South Korea has more than doubled compared to five years ago. If the second term of the Donald Trump administration begins, there is a possibility that it will demand renegotiation of the Korea-U.S. Free Trade Agreement (FTA) to reduce the trade deficit, so we need to establish strategies to prepare for this."

Barbara Weisel, Co-CEO of Rock Creek Global Advisors and former USTR Deputy Representative, recently told Asia Economy in an interview, "If President Joe Biden focuses on resolving China's unfair trade practices, former President Donald Trump prioritizes eliminating trade deficits with all countries, including China," she said.

Weisel predicted that the Biden administration's recent tariff hikes on Chinese 'overproduced' imports would "open the door for other countries to raise tariffs on China," leading to a global tariff increase domino effect and Chinese retaliatory measures.

She also forecasted that despite the alignment of trade policies between President Biden and former President Trump, U.S.-China conflicts will continue regardless of the outcome of the November U.S. presidential election. She advised, "Whether it is a second Biden administration or a second Trump administration, the U.S. will continue trade and investment sanctions against China to address trade and economic security concerns. Amid rising U.S.-China tensions, South Korea should diversify supply chains heavily dependent on China, expand partnerships, and strengthen leadership in key technologies to find breakthroughs."

With the U.S. presidential election five months away, both incumbent President Biden and former President Trump, who is seeking re-election, are signaling a tough stance on China trade and protectionism, increasing uncertainty around the global trade environment. We spoke with Weisel, former USTR Deputy Representative, about the current status and outlook of U.S. trade policy and South Korea's response strategies. Below is a Q&A with Weisel.

-The Biden administration has pointed out China's overproduction and raised tariffs on Chinese imports, urging the European Union (EU) and others to join. How do you assess the impact on the global trade environment?

▲Many countries are concerned about China's support for strategic sectors leading to overproduction of products like electric vehicles (EVs) and their unfairly low prices. Last month, the Group of Seven (G7) finance ministers issued a statement expressing concern and announced they would consider measures. Not only advanced countries but also developing countries such as India, Brazil, Mexico, Argentina, and Chile have begun responding to the flood of cheap Chinese imports. The U.S. decision to raise tariffs on Chinese imports will open the door for other countries to take similar actions. After the U.S. announcement, Canada stated it would consider raising tariffs on Chinese imports. The EU is finalizing subsidy investigations on Chinese EV imports and plans to raise tariffs. China is almost certain to retaliate by controlling exports of key items vital to other countries' manufacturing or by flooding other overseas markets with overproduced goods.

-China is expanding indirect exports to the U.S. through Mexico and Vietnam to evade high U.S. tariffs. The USTR hinted at restricting China's indirect exports via Mexico. What additional measures do you foresee?

▲Different approaches may be taken depending on the product. The most immediate concern is Chinese-made EVs. Although the Biden administration raised tariffs on Chinese EVs fourfold, EVs entering the U.S. through third countries like Mexico are not affected. Ultimately, other tools will be sought. The Biden administration appears to be working on announcing new 'Information and Communications Technology and Services (ICTS)' regulations to restrict imports of connected cars made by Chinese manufacturers, citing national security concerns.

-Ahead of the November election, President Biden's trade policy is becoming increasingly similar to former President Trump's. What are the similarities and differences between the two leaders' trade policies?

▲Both the Biden administration and the Trump administration have taken nationalist and populist approaches to trade policy. Both have focused on addressing China's unfair trade practices and their impact on American workers. The Biden administration has maintained and significantly increased tariffs on Chinese imports imposed by the Trump administration. Both have concentrated on economic security by restricting trade and investment related to advanced technology products and services with China and other adversaries. Both have stepped back from the traditional U.S. role as a leader of an open, rules-based global trade system.

The difference is that the Trump administration prioritized eliminating trade deficits with China and other countries and concluded trade agreements to reduce them. This approach was more unilateral and transaction-based. In contrast, the Biden administration has focused more on China and its unfair trade practices. It has supported industrial policies to promote domestic investment, production, and employment in next-generation industries such as semiconductors, EVs, and clean energy technologies. While pursuing reshoring of manufacturing jobs, it has also sought to address concerns about China's unfair practices through cooperation with allies and partners.

-Concerns about the 'Trump risk' are growing. Is it feasible for former President Trump to impose a universal 10 percentage point tariff on all imports worldwide and a blanket 60% tariff on Chinese goods?

▲Former President Trump called himself the 'tariff man' during his term. There is no reason to doubt his willingness to impose new tariffs. He advocates universal tariffs on most imports, revoking China's most-favored-nation status, and reciprocal tariffs. U.S. think tanks estimate that if Trump's tariff increase plans are realized, American households would face an additional $1,500 to $1,700 in annual costs, and the U.S. economy would suffer significant collateral damage. However, officials from Trump's first term believe tariff increases did not produce negative economic outcomes, so they are likely to dismiss such concerns about new tariff plans. It is highly likely that a second Trump administration would push for tariff increases as in the first term.

-If former President Trump wins the November election, what demands might he make to South Korea in the trade sector, and how should South Korea prepare?

▲The U.S. trade deficit with South Korea exceeded $51 billion last year. South Korea ranks as the eighth-largest country with a U.S. trade deficit, and the deficit size has more than doubled compared to five years ago. If the second Trump administration begins, regardless of the causes of the trade deficit increase, it may demand renegotiation of the Korea-U.S. FTA or concessions from South Korea to reduce the trade deficit. South Korea needs to develop its own strategy to prepare for such renegotiations. It should not only upgrade existing FTA provisions but also seize the opportunity to address newly prioritized trade and economic security issues.

-Do you expect U.S.-China trade conflicts to intensify further after the U.S. presidential election?

▲Regardless of the U.S. election outcome, U.S.-China trade relations will continue to face difficulties. Whether it is a second Biden administration or a second Trump administration, the U.S. is expected to continue imposing new trade and investment sanctions on China to address trade and economic security concerns. China will double down on localization efforts in key fields of technological competition such as advanced semiconductors, AI, and biotechnology, and impose its own sanctions in response to U.S. moves. Other countries may not want to be forced to choose between the U.S. and China, but it is expected to be difficult to avoid the repercussions of rising U.S.-China tensions.

-The U.S. surpassed China as South Korea's top export destination in Q1 this year. Does this indicate South Korea is decoupling from China?

▲It is too early to tell. Various factors contributed to the U.S. becoming South Korea's largest export market in Q1. These include strengthening resilience, South Korea's supply chain restructuring to reduce exposure to China's economic coercion, China's economic slowdown and localization efforts, and utilization of U.S. industrial policies. Moreover, China remains South Korea's largest import source. In 2023, China sold $143 billion worth of goods to South Korea, nearly twice the $71 billion from the U.S. South Korea imports key minerals necessary for major industries such as automobiles, semiconductors, and EVs from China. Whether South Korea can diversify suppliers and reduce dependence on China remains to be seen.

-As mentioned, South Korea is closely intertwined with China in supply chains. What strategy should South Korea adopt amid U.S.-China trade conflicts?

▲South Korea should continuously diversify supply chains and expand global partnerships. It should also strengthen leadership in key technologies to enhance resilience and maximize national interests while avoiding China's economic coercion.

About Barbara Weisel

Barbara Weisel is an international trade expert who served as Deputy USTR for Asia-Pacific. From 2008 to 2016, she was the U.S. lead negotiator for the Trans-Pacific Partnership (TPP), a free trade agreement among 12 Asia-Pacific countries. She also served as Deputy USTR responsible for South Korea, Southeast Asia, and South Asia. Before joining USTR, she worked for 10 years at the U.S. Department of State as an international economist researching Japan, the Persian Gulf, and North Africa. Leveraging her expertise in international trade gained at USTR, she now serves as CEO of Rock Creek Global Advisors, focusing on international trade, investment policy, negotiations, market access, and regulatory issues. She graduated from the University of Connecticut and holds two master's degrees in public policy and religion from Harvard University.