The Next Trade War: Trump Threatens To Terminate "Horrible" Trade Deal With South Korea

Two days after launching a trade war with Canada by imposing tariffs on lumber imports, one day after nearly terminating NAFTA (but stopping just shy after an alleged phone call from the leaders of Mexico and Canada), Trump has finally turned his attention to the one nation whose GDP consists of roughly 60% net trade, and which we said several months ago, is far more likely to be punished for trade malpractice than China: South Korea.

Speaking to Reuters and WaPo, Trump - who earlier also told Reuters that a "major, major" conflict with North Korea is possible - Trump sharply criticized the U.S.-Korea Free Trade Agreement, known as Korus, the latest version of which was ratified in 2011 and said that he will "renegotiate or terminate" the "horrible" free trade deal. Next week marks an anniversary for Korus and triggers a review period to potentially renegotiate or ratify a new version of the agreement.

“It’s a horrible deal. It was a Hillary Clinton disaster, a deal that should’ve never been made,” Trump said. “It’s a one-way street.”

“We’ve told them that we’ll either terminate or negotiate,” Trump said. “We may terminate.”

Trump added: “I will do that unless we make a fair deal. We’re getting destroyed in Korea.”

On his trip to Asia last week, Vice President Pence said to an audience of business leaders in Seoul that the United States was looking to “reform” the Korus agreement because U.S. businesses “face too many barriers to entry, which tilts the playing field against American workers and American growth.”

The president explained that the process of termination of Korus is simpler than with the North American Free Trade Agreement. “With NAFTA, we terminate tomorrow; if we did, it ends in six months. With the Korean deal, we terminate and it’s over.”

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Trump also said he wants South Korea to pay for the recent $1 billion deployment of the U.S. Terminal High Altitude Area Defense, or THAAD battery, a missile defense system deployed to South Korea to protect against accidental North Korean launches, and to antagonize China.

Hyundai Motor shares fell as much as 2.4% after Trump's comments, while the South Korea's won also dropped on the comments. South Korea's automakers association said it was concerned about the possible revision of the country's trade deal with the United States, an official of the industry group said on Friday. 

"We are worried about the uncertainty of the deal," Kim Tae-nyen, vice president at the Korea Automobile Manufacturers Association (KAMA), told Reuters by telephone.

As Reuters followed up, a senior South Korean finance ministry official said the country has not yet received official requests on renegotiation of its free trade pact with the United States.

"Talk and actual policy are different," the official told Reuters. "They have not requested anything from us so we'll have to wait and see."

Trump's aggressive trade stance was unveiled as tensions are rising on the Korean Peninsula and as South Korea's increasingly more irrational neighbor is proving to be a major source of instability, and thus leverage for any future Trump negotiations.