In some welcome news amid escalating global trade war fears, on Sunday the U.S. and South Korea reached an agreement on revising the existing 6-year-old bilateral trade deal as well as Trump’s plan to impose tariffs on steel imports, Treasury Secretary Steven Mnuchin said.
Speaking on Fox News Sunday, Mnuchin said U.S. Trade Representative Robert Lighthizer reached “a very productive understanding” with South Korea on the tariffs to reduce imports and the existing trade deal known as Korus, and added that he expects "to sign that agreement soon." The resolution means that the US now has tariff exemptions with the EU, Australia, Brazil, Argentina, and South Korea.
As a result of the agreement, which he called "an absolute win-win", South Korea "will reduce the amount of steel that they send into the United States."
South Korea - the world's 7th largest export economy, whose exports amount to a whopping 45% of GDP - had a trade surplus with the U.S. of about $18 billion in 2017, down from $23 billion in 2016, with cars accounting for more than 70% of the value of the surplus.
Bloomberg adds that S.Korea Trade Minister Kim Hyun-chong also said trade negotiators from the two countries agreed “in principle” on both issues. Oddly, Kim said South Korea made no concessions to further open its agricultural market to U.S. exporters - something he described as a red line. He also said that there’s been “no retreat” on tariffs removed in Korus, which is strange because somehow the two sides are said to have reached a compromise, yet neither admits to "retreating" on policy issues.
Previously, frictions over Korus emerged when Trump blamed the U.S.’s large trade deficit with South Korea on the "horrible" agreement, and as a result, the open issue has been seen as a potential wedge between the allies as both their leaders plan for expected meetings with North Korean leader Kim Jong Un.
The Trade Ministry said Kim will brief on the outcome of the trade negotiation to media Monday morning.
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Separately, Mnuchin also said he’s optimistic that the U.S. can reach a agreement with China that will eliminate the need to impose the tariffs that Trump ordered on a least $50 billion of goods from that country. "We’re having very productive conversations with them,” Mnuchin also told Fox on Sunday. “I’m cautiously hopeful we reach an agreement.”
A day after Trump’s announcement, China unveiled $3 billion in tariffs on U.S. imports in response to steel and aluminum duties ordered by Trump earlier this month. While the retaliation appeared modest, as we reported on Friday citing the editor in chief of China's state owned Global Times, that $3 billion was in response to the previous, Section 232 round of tariffs, and had nothing to do with the latest round of $50BN in Section 301 tariffs.
I learned that Chinese govt is determined to strike back. Friday's plan to impose $3b tariffs is to retaliate tariffs on steel and aluminum products. China's retaliation lists against the 301 investigation will target US products worth $ tens of billions. It is in the making.
I learned that Chinese govt is determined to strike back. Friday's plan to impose $3b tariffs is to retaliate tariffs on steel and aluminum products. China's retaliation lists against the 301 investigation will target US products worth $ tens of billions. It is in the making.— Hu Xijin 胡锡进 (@HuXijin_GT) March 23, 2018
And while we still wait what China's full-blown response will be to the "301" sanctions, the White House also declared a temporary exemption for the European Union and other nations on those levies, making the focus on China clear.
The U.S. will proceed with tariffs “unless we have an acceptable agreement that the president signs off on” Mnuchin said, adding that “we’re not afraid of a trade war, but that’s not our objective. In a negotiation you have to be prepared to take action."
Meanwhile, in the latest not so veiled threat, on Saturday the People's Daily newspaper on Saturday listed U.S. companies that’d be “most damaged” if a trade war began, and included Apple, Intel and Boeing. Should there be no immediate resolution to the China-US trade war, look for these three companies to take the brunt of the market pain in the coming week.
And sure enough, Apple’s Tim Cook - who coincidentally was in a forum in Beijing on Saturday - said he’s going to encourage that “calm heads prevail” on the potential trade war. China is Apple’s single most important market outside the U.S. “The countries that embrace openness do exceptional and the countries that don’t, don’t,” he said. “It’s not a matter of carving things up between sides.” And, if it is, it will be Apple that will be among the companies most impacted as a result of its massive trans-Pacific supply chains.