President Donald Trump has his first trade deal.
Senior US officials on Tuesday gave details on an agreement in principle with South Korea to revise a trade deal that originally went into effect in 2012.
The officials said the agreement was an example of Trump delivering on his promise to voters to negotiate better trade deals for the United States.
“This agreement is visionary and innovative,” one senior administration official, speaking on background, told reporters.
The US officials made their case for why the revised deal is an improvement on the one that’s currently in effect, which Trump has slammed as “horrible” and a “job killer.” The South Korean government first announced details of the agreement on Monday.
Some economists have suggested the new deal isn’t significantly different from the old one. South Korean exporters will be relieved that none of the tariffs that were lifted under the original agreement have been brought back, according to Krystal Tan, an economist at research firm Capital Economics.
Experts point out that the negotiations lasted only a few months, far shorter than trade talks typically take. Striking a deal quickly, they note, has the advantage of removing a potentially divisive issue between the two military allies at a time of tensions and delicate talks with North Korea.
Here are some of the main takeaways from the new agreement:
The Trump administration says some of the key changes affect the auto industry, which accounts for a big chunk of the trade deficit the United States runs with South Korea.
Under the revamped deal, each US carmaker will be allowed to export 50,000 vehicles per year to South Korea that meet American safety standards, up from 25,000 previously. Beyond that threshold, cars shipped from the United States will have to comply with South Korean safety rules, which American companies say put them at a disadvantage.
But analysts say the increased quota is unlikely to make much difference anytime soon. No US automaker sold more than 11,000 cars in South Korea last year.
Trump administration officials argue, though, that US car companies should benefit from an agreement by South Korea to ease “burdensome” auto regulations more broadly. That includes reducing additional tests and getting rid of labeling requirements that, the administration argues, hinder American automakers’ ability to sell in South Korea.
The revised deal also postpones the phasing out of a US tariff of 25% on pickup trucks from South Korea. It will now end in 2041 rather than 2021. Capital Economics says no Korean automaker exports pickup trucks to the US at the moment.
Steel and aluminum
The agreement will limit South Korean steel exports to the United States. The cap will be set at 70% of what South Korea sends over in an average year now. After 70%, South Korea can’t export more steel to the United States in any year.
South Korea will not be subject to the broad 25% tariff that Trump has imposed on most other countries. He has granted temporary exemptions to several other US allies, including Canada, Mexico and the European Union.
South Korea will still be subject to the 10% tariff on aluminum that was imposed on most nations.
The United States and South Korea also agreed to try to make sure neither country devalues its currency intentionally to gain an unfair advantage on trade. But the measure lacks teeth.
When a currency is weaker, it makes exports cheaper — and more attractive — to foreign buyers. It also makes foreign imports more expensive for local consumers. On the campaign trail, Trump repeatedly railed against other countries that he accused of purposely devaluing their currencies to get an unfair edge over the United States.
The United States has never included a provision on currencies in a trade negotiation before, according to Trump administration officials.
But the devil is in the detail. The currency provision is not actually in the official agreement and has no enforcement mechanism. Including it in the text of the deal would have required a lengthy legislative approval process, a path that administration officials indicated they did not want to go down.
In effect, both countries are just agreeing to act in good faith with their currencies.