Monday, Apr 23, 2018
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David Kushma

Trade benefits need to flow both ways

Free trade is good, mostly, for the United States. So President Obama might try persuading more of our trading partners, along with his domestic political allies, to embrace it in action as well as with nice words.

During his Asian trip last week, the President failed to close the deal with his South Korean counterpart on a long-pending trade agreement between the two countries. Although Mr. Obama attacked the accord during his campaign two years ago, his administration has worked to renegotiate the pact rather than scrap it. He says he still wants to make it work.

South Korea has one of the world's strongest emerging economies. One of the key issues that caused the trade talks to collapse is that the Korean government continues effectively to close the country's auto market to foreign competitors, including the Detroit Three automakers.

Three-fourths of the U.S. trade deficit with Korea - more than $6.6 billion in the first nine months of this year - is in autos. That didn't happen by accident. It would be hard to see the value, especially to an auto state such as Ohio, of a "free trade" agreement that allowed such blatant protectionism to persist.

The Bush administration and South Korea signed the trade agreement in 2007. Congress has yet to approve it, largely because of opposition among Democratic lawmakers who channeled the hostility of Big Labor to the bilateral deal.

The task of ratification presumably has gotten easier with the election this month of a much more Republican Congress. Yet nativist sentiments within the GOP's Tea Party caucus raise questions about its allegiance to liberalized trade.

Last week, President Obama repeated all of the standard - and correct - arguments about the benefits of dismantling barriers to global trade that have been made since the days of Adam Smith.

Contrary to the scare rhetoric about "outsourcing," increased exports create jobs and strengthen companies in this country. The broader range of products offered by freer trade means more choices and lower prices for consumers.

Open trade improves other relations with our allies, including strategic ones. Journalist Thomas Friedman theorizes that "no two countries that are both part of the same global supply chain will ever fight a war." If the United States and Korea aren't sniping - figuratively - at each other over trade, they'll be in a better position to work together to keep Chinese ambitions, economic and otherwise, in check.

And if we don't take advantage of openings to foreign markets, our competitors surely will. The European Union has a brand new free-trade agreement with South Korea.

The U.S.-Korean deal promises to enhance trade benefits by cutting both countries' tariffs on a broad range of exports, including cars and trucks. But there's a big catch: South Korea has long protected its domestic auto industry from competition by imposing a wide array of nontariff barriers: manipulating its currency, auditing the tax returns of Korean owners of imported cars, and placing absurd limits on TV advertising by foreign automakers.

How bad is it? This year, Korean automakers will export more than 500,000 vehicles to the United States. U.S. automakers will export fewer than 7,500 vehicles to Korea - amounting to less than one-half of one percent of the Korean market.

A statement on the Korean government's official Web site extols the U.S. free-trade agreement as a way "to secure access to an overseas market vital for Korea's sustainable growth." It's silent on the lack of access to its vital automotive market.

Pete Lawson, vice president of government affairs for Ford Motor Co., says his company has backed every trade agreement Congress has approved for the past 45 years. But the automaker has launched a campaign to oppose the Korea deal.

"More than 95 percent of all cars sold in Korea are made in Korea," Mr. Lawson told me. "You don't have that market without government intervention."

Sometimes that intervention is "brazen," Mr. Lawson says: offices raided, changes in vehicle certification ordered at the docks. Sometimes it's more subtle but equally effective, such as discriminatory enforcement of environmental, safety, or fuel-economy rules.

Either way, Korea can't demand the benefits of free trade while restraining import competition in such a key industry - unless, of course, Washington acquiesces in maintaining this one-way traffic.

Of course Ford is pursuing its self-interest, but it's more than that. Ford doesn't have the presence in northwest Ohio that Chrysler (which also opposes the trade agreement) or General Motors does.

But it's a major player in our state's economy: 7,700 direct employees and 21,200 retirees, 170 dealerships that employ another 6,800 people, more than $2.7 billion in annual purchases from 700-plus suppliers across Ohio.

Ohioans don't seem to fear free trade. They elected Rob Portman, a former U.S. trade representative under President George W. Bush, to the Senate this month. They resisted strenuous efforts by his Democratic opponent, Lee Fisher, to blame Mr. Portman's trade policies for our state's massive job losses.

But we also know when we're getting played. A good trade deal would greatly benefit the United States and Korea, including the auto industries of both countries. But we won't get there with a "free trade" agreement that ratifies protectionism.

David Kushma is editor of The Blade.

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