The Trade Deficit Is Ballooning Under KORUS

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President Obama took up the South Korea – U.S. free trade agreement (KORUS FTA) as his own, despite the fact that it was negotiated by his predecessor. He promised Americans more jobs and increased exports, despite the fact that studies showed we would actually lose jobs from this agreement.

It hasn’t taken long to see that the critics of this agreement were right.

The agreement went into effect in March, and it took only a scant amount of time to see that fears about the agreement were well-founded. The trade deficit nearly tripled in one month to $1.8 billion, which was also a $700 million increase from April of 2011. May saw an additional increase, and in tandem these two months showed a 63 percent increase in our trade deficit over the previous year.

Our exports actually fell by 12 percent in the first month, which was exactly the opposite of what we were told would happen by our leaders.

The months since have shown a continued trend of growing deficits. It seems safe to say that our yearly trade deficit under KORUS will be much higher than prior to this misguided agreement.

One of the problems is that while we say we have a free trade agreement with South Korea, KORUS is actually stacked against us. It is true that KORUS did eliminate some tariffs on American goods, but everything we export is still subject to South Korea’s 10 percent Value Added Tax (VAT). While Korea’s domestic manufacturers can receive rebates for the VAT they pay, American producers have no choice. This VAT makes American goods more expensive and less appealing to South Korean consumers.

Every major industrialized country uses a VAT except the United States. This means that every time we enter into a new free trade agreement we are entering into a situation where American producers are at an undeniable structural disadvantage.

The United States needs to recognize that the free trade agreements we sign benefit only a small minority of wealthy individuals. They reap the benefits, while other Americans lose their jobs. Our government continues to push these agreements despite the fact that they are bad for our country. This is unsustainable, and needs to change for the good of the country.

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