President Trump is considering withdrawing from the U.S.-Korea Free Trade Agreement (KORUS), sources familiar with the matter tell Axios. We've not been able to establish how serious this threat is, or how far along in the process it is.
Administration sources have cautioned that no decision has been made, but the leaking of these deliberations has startled many in the U.S. business and pro-trade communities, who were under the impression that KORUS withdrawal was not in the cards for 2017.
Why this matters: More than $100 billion of annual trade between U.S. and Korea in goods — and billions more in services — hangs in the balance as Trump weighs this decision. Withdrawing from the trade deal would also damage relations between the U.S. and a key ally in Asia at the same moment the North Korean threat is escalating to historic proportions.
Questions the business and pro-trade communities are asking today:
- Is this a legitimate threat or is Trump trying to play the Koreans and the U.S. business community (to convince the Koreans to take seriously that he wants major changes to the deal)? It's one thing for the president to get mad at the first round of trade negotiations with Korea and order an official to draft up a withdrawal notice. It's another thing to go through with it.
- The legal questions: What is Congress going to do if Trump follows through with this threat?
- The economic issue: What will happen to billions of dollars of annual trade, including deals, contracts, and business investments made months ago under the assumption that the current trading conditions between the countries are relatively stable?
How this story broke out:
- On Friday night, Inside U.S. Trade published a story headlined "Sources: U.S. could begin process of withdrawing from KORUS next week."
- The Washington Post and the Wall Street Journal followed up with similar stories today.
- A senior administration official told Axios: "As you know, the joint committee met last month after Amb. Lighthizer called a special session. Discussions are ongoing but we have no announcements at this time."
- In the spring, USTR and White House officials quietly reassured the business community that despite certain pronouncements during the campaign, KORUS was on nobody's radar screen. They had bigger fish to fry with the North American Free Trade Agreement, and withdrawing from KORUS was not on the table.
- Then, in late June, Trump said during a joint press conference with the South Korean president: "We are renegotiating a trade deal right now as we speak with South Korea and hopefully it will be an equitable deal..." The business community scrambled.
- USTR initiated a dialogue with the Koreans, which is allowed under the agreement. It's intended for relatively minor tweaks to the deal.
- We're told the first set of U.S.-Korea meetings, in the summer, didn't go well. The USTR apparently lectured the Koreans about the trade imbalance, and the Koreans had no idea what to say in response to these attacks.
- The conventional wisdom that emerged from the first round of meetings was that they'd figure out a few things to tweak but that nothing drastic would happen this year.
A potentially major problem for Trump: There's now a legal debate raging — which came up in the NAFTA discussions, but is equally relevant for KORUS — about whether Trump has the authority to withdraw from these trade deals without getting Congress's approval. The laws governing these processes are a mess and have never been rigorously tested.
- What happens, law professors and other experts are asking, when you have a president withdrawing from an agreement that Congress approved?
- Congress has the constitutional Commerce power and Trump doesn't have the power to terminate the underlying law.
- Would Congress sue the president? Would business groups or importers do so?
- Nobody has ever resolved these blatant issues; and few bothered looking at it because the president was always thought to be the most free trade guy in the room.