Internal Assessment 4
Macroeconomics and International Economics
Name: Frank Stary
South Korea trade pact: US beachhead for pacts with Japan, China
Congress should approve the tentative trade agreement with South Korea. It's a model for what the US should get from China and Japan.
By the Monitor's Editorial Board / December 6, 2010
Americans whose jobs have been outsourced abroad – but who also have a Toyota in the garage, a cellphone from China, and a TV made in Taiwan – would be excused for being of two minds about whether the US should adopt another free-trade pact.
But then, in this dormant American economy, the brightest prospects for creating new jobs lie in expanded exports. And a tentative trade agreement approved Friday between the Obama administration and South Korea is the brightest star so far in US efforts to boost the overseas sales of its goods and services.
It is also critical to President Obama’s promise to double exports by 2015.
Congress has few reasons to oppose this pact, which would be the largest one since the 1994 North American Free Trade Agreement (NAFTA). Mr. Obama, who opposed the first tentative deal with Korea, negotiated in 2007 under President Bush, was able to extract enough concessions to give this pact a strong bipartisan sheen.
For one, it breaks down more barriers to exports of US-made cars and gives US truckmakers more time to become more competitive with Korean-made trucks. It would eventually lift tariffs on both sides for about 95 percent of trade between the two countries. By official estimates, that would boost US exports by $10-12 billion a year, creating tens of thousands of jobs.
But even more, ratifying a deal with South Korea – America’s seventh-largest trading partner – could also help create the possibility for free-trade pacts with Asia’s two economic giants, Japan and China.
America’s trade history is full of attempts to roll back Asia’s twin problems in economics: an approach to business that curbs competition and a “command economy” in which governments favor domestic industries and set up nontariff trade barriers.
US lawmakers would also be wise to act soon on the Korea pact as Seoul is racing to firm up trade deals with Europe, India, Australia, and other nations. Also, the recent attacks by North Korea that killed South Korean civilians serve as one more reason to reinforce the two nations’ military alliance by pushing more trade cooperation. (The US is only 10 percent of the South’s export market.)
For Obama, winning approval of this pact in Congress will bolster his leadership in achieving other successes on the economy.
And with the recent global recession triggering a resurgence of protectionism in many countries, the US must again assume the mantle of leadership and keep trying to open foreign markets.
Far more American jobs have been created over time than lost because the US remained open to the world. Trade forces companies to be more efficient, creative, and nimble – the very qualities that have kept the US as the world’s biggest economy, and can continue to do so.
This article explains whether or not the US should develop a free trade agreement with South Korea. In order to adequately comment on this issue, it is essential to explain how a free trade agreement would benefit the US by explaining the advantages and disadvantages of this agreement. This can then be supported by an explanation of how reducing the tariffs would work. To link it with macroeconomics, the effect of this agreement on the unemployment level will also be explained. And finally, I will evaluate whether the US should pursue this agreement or not.
A free trade agreement between the US and South Korea would have several advantages and disadvantages. It would be beneficial for the US