Trump's Threat to End U.S. Trade Deal with South Korea: Where's the Beef?

September 06, 2017

In listing bad things that Donald Trump is doing for the economy, Washington Post business reporter Heather Long included his threat to end the trade deal with South Korea. The piece noted that U.S. beef exports to South Korea topped $1 billion last year. While this is intended to be a big deal, it is not clear that it is.

This amount is roughly 1.5 percent of total beef production. More importantly, it is wrong to imply that this output would just sit and rot if the trade deal were cancelled. While South Korea might reduce its imports of beef from the United States, it is unlikely they would go to zero even if the deal was cancelled. If the U.S. is the lowest cost provider of beef to South Korea, the government would effectively be punishing its own people by denying access to U.S. beef. Democratically elected governments usually don’t think it’s good politics to punish their people.

The other point is that insofar as U.S. beef exports to South Korea are replaced by another supplier, it will be opening up a new potential market for the United States. For example, if Brazil, the world’s #2 beef producer, began exporting another $500 million in beef to South Korea, by diverting exports that had previously gone to other countries, then these other countries would offer a new potential market to the United States.

It will be the case that the result of Trump cancelling the trade deal will be somewhat lower U.S. beef exports, resulting in beef producers getting slightly lower prices in the United States, but the idea that this would be some sort of catastrophe for them does not make sense. (FWIW, I think it is a bad idea to pull out of the trade deal.)

The piece also attributes the fall in the stock market yesterday to the uncertainties created by Trump’s threats on the trade deal, ending DACA, and the risks of war with North Korea. While this is possible, it is also possible that investors are getting concerned that they will not see the promised tax cuts as the recovery from Harvey just increases the congressional agenda for the fall. It is also possible that the fall had nothing to do with anything, which is often the case with stock market fluctuations.



I forgot to add that if the prices received by domestic beef producers falls, this means lower prices to consumers in the United States, which will free up more money to spend on other items. This effect will almost certainly be trivial, but that’s because the impact of any changes in exports is likely to be trivial, in spite of the claims of highly paid lobbyists and the promoters of these trade deals in the media.


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