By Mark Tokola, Phil Eskeland, Troy Stangarone, Kyle Ferrier, Juni Kim, Yong Kwon, and Sang Kim

2018 was a year of dramatic change on the Korean Peninsula. The prospect of war that seemed to growth with each North Korean nuclear or missile test receded as North Korea, the United States, and South Korea moved towards diplomacy which culminated in the historic summit meeting between U.S. President Donald Trump and North Korean Chairman Kim Jong-un in Singapore.

While the move towards diplomacy with North Korea was the top story of 2018, the year also saw South Korea successfully host the 2018 Winter Olympics, South Korean President Moon Jae-in move more directly towards implementing his income lead growth strategy, and K-pop take another significant step towards breaking out in the United States.

As we move into 2019, some of the big questions facing the Korean Peninsula will center around whether real progress can be made with North Korea now that we are beyond the initial stages of diplomacy and what that means for inter-Korean relations. Other key issues for 2019 will be how the U.S.-China trade war plays out and the implications for South Korea, as well as whether income lead growth will be able to overcome some of the initial implementation challenges it has faced.

With that in mind, here are 10 issues related to North Korea, South Korean politics, and U.S.-Korea relations to follow that will have an impact on the Korean peninsula in the year ahead:

Whether a Peace Process Can Develop

It is generally believed that the denuclearization of North Korea will be accompanied by a “peace process” (or peace regime, or peace declaration, or end-of-war declaration – there are many terms being tossed around) but what this would actually mean or whether it would come before or after an agreement on denuclearization is unclear.  The “peace process” may come in pieces.  There is nothing to prevent North and South Korea from declaring on their own that peace has come to the peninsula.  Similarly, the United States and North Korea could issue a joint statement saying that have no hostile intent towards one another.  If such statements can promote denuclearization or decrease tensions, well and good.  The devilish details would be in what concrete steps if any would accompany a declaration of peace.

2019 may well see announcements of peace on the Korean Peninsula.  It would seem like an irresistible flourish to mark Kim Jong-un’s visit to Seoul, or to give an appearance of progress for a second Trump-Kim Summit.  But, watch for the details.  Would a declaration of peace be accompanied by a road map towards denuclearization? A normalization of relations with liaison offices being established in Washington and Pyongyang?  A more wide-ranging commitment by North Korea to restrain its belligerent behavior beyond denuclearization, such as in cyber or other weapons systems?  Would there be a move towards formally ending the Korean War by winding up the armistice? Thinking through what a peace process would mean reveals that there are big issues beyond denuclearization.

Will the United States Lift Sanctions on North Korea?

In his New Year’s Day address, Kim Jong-un called for the United States to lift sanctions if it wants the process of dismantling North Korea’s nuclear weapons to go forward. In the past, the Trump administration has said that North Korea would have to dismantle or substantially dismantle its weapons programs before sanctions relief would be possible. With progress with North Korea stalled, one of the key questions for the Trump administration will be whether it sticks to its stance or accommodates North Korea’s push for sanctions relief.

If the Trump administration decided to move forward on sanctions relief there are four general ways it could look to pursue to move the talks forward and demonstrate good faith. The first area would be to support inter-Korean engagement. Here the administration could support further sanctions waivers to allow inter-Korean economic projects to advance. At the United Nations, the administration could support removing one or more specific sanctions that have been placed on North Korea. Another, more likely option at the UN, would be for the administration to pursue time-limited waivers of sanctions that are contingent on progress by North Korea in dismantling its nuclear programs. The final option would be for the administration to waive one or more specific U.S. sanctions where it has the authority to provide a national interest waiver.

Burden Sharing and the U.S.-Korea Military Relationship

As part of his professed “America First” values, U.S. President Donald Trump has repeatedly criticized South Korea, and other U.S. allies, for what he views as an unfair defense burden to America for stationing U.S. troops. The U.S. has maintained a military presence in South Korea since the Korean War in the 1950s and South Korea currently hosts 28,500 American troops, the third largest number of troops stationed in a foreign country after Japan and Germany. Ten rounds of negotiations occurred throughout 2018 between U.S. and South Korean officials to renew the Special Measures Agreement, a 2014 burden sharing deal that is set to expire at the end of 2018. The latest round failed to reach a deal over demands from the U.S. for South Korea to greatly increase its contribution and has prompted fresh concerns over the U.S.’s commitment to the alliance. Without a new deal in place, Korean workers at U.S. military bases in South Korea are in danger of being put on leave in the New Year. If left unresolved, the ongoing debate over cost-sharing could greatly hinder future U.S.-ROK relations.

The Future of THAAD in South Korea

China’s protest of the deployment of Terminal High Altitude Area Defense (THAAD) batteries, which were provided by the U.S. military, in South Korea in 2017 led to a political and economic row between the two countries. A resulting Chinese ban on tourism to South Korea and South Korean goods eventually gave way to an agreement late last year to normalize trade relations. Although trade and tourism numbers have started to rebound in 2018 after dramatic decreases in 2017, negative repercussions still remain, though the exact cost of the sanctions are hard to definitively quantify South Korea has likely lost more than $13 billion from the decline in tourism alone. In particular, the Korean conglomerate Lotte, which provided the land for THAAD deployment, has suffered from the after-effects of China’s sanctions with its stores in China shuttering due to lost business.

For 2019, it will be worth watching if the numbers continue to recover and how South Korean businesses adapt to the potential risks of dealing with a volatile Chinese market. For Lotte’s part, the company has actively courted Southeast Asian markets to make up for Chinese losses. It will also be worth watching if THAAD becomes part of talks with North Korea or the expected results of a South Korean environmental impact study affect its deployment.

U.S.-Korea Trade Relations – Section 232 Investigation

The past year has seen great progress in ameliorating initial uncertainties:  exports of U.S. goods and services to Korea increased 10 percent; the bilateral trade deficit declined by 43 percent; and agreements were reached and ratified to modify the Korea-U.S. Free Trade Agreement (KORUS FTA) and to limit Korean steel exports to the United States.

Nonetheless, there is still one looming threat – the possible imposition of U.S. tariffs as high as 25 percent on imported motor vehicles and parts from South Korea.  The Commerce Department has until February 17, 2019, to release the results of its Section 232 investigation into the national security implications of imported autos and parts.  If the report concludes that these products are a threat to U.S. national security, the President has until May 17, 2019, to make a final decision on tariffs.  However, because Korea and the U.S. concluded their negotiations on KORUS and steel two months before the Commerce Department launched this investigation, other major auto producers – Canada, Mexico, Japan, and the European Union – received reprieves or waivers on higher tariffs during their trade talks with the United States.  No decision has yet been made to exempt South Korea from higher tariffs even though Korea imposes zero tariffs on motor vehicles imported from the United States; the revisions to KORUS made several changes benefiting U.S. automakers, including a 20-year extension of the 25 percent U.S. tariff on imported pick-up trucks; and the value of U.S. imports of motor vehicles and parts from Korea has steadily declined since 2015.  Imposing a 25 percent tariff on imported cars and parts would also add approximately 10 percent to the production cost of Korean name-plated cars assembled in Georgia and Alabama, making their vehicles less affordable to the American public, resulting in a significant reduction in employment at both their manufacturing facilities and their dealerships.

Compounding the issue is the frustration that President Trump expressed on November 28^th regarding the recent announcement of the closure of four GM plants in the U.S. that make auto parts and smaller vehicles.  The President tweeted, “the countries that send us cars have taken advantage of the U.S. for decades,” reflecting a fundamental worldview that he has believed for over 30 years.  Trump added, “if we [imposed a 25 percent tariff on] cars coming in, many more cars would be built here.”  Because Korea still exports some cars to the U.S. that compete against GM, the threat of a higher tariff could be used to pressure Korean car manufacturers to move even more production to the United States.  President Trump also desires that Korea pay much more to continue stationing U.S. troops on the Korean peninsula.  He could use the threat of higher car tariffs as another pressure point on South Korea.  Unless Korea is granted an exemption on the auto tariffs, much of the goodwill in the bilateral trade relationship that has been generated over the past year will quickly dissipate because it will be perceived as bad faith in terms of moving the goalposts in bilateral trade negotiations.

The U.S.-China Trade Conflict

On the surface, tension in U.S.-China trade relations does not appear to affect South Korea too much because South Korea’s economy is more aligned with the United States.  However, because China is now Korea’s largest trading partner, South Korea could be caught in the undertow of the churn in U.S.-China friction.  Some Korean brand consumer electronic products are assembled in China and subsequently exported to the United States, which now has to be re-thought in light of the threat of U.S. tariffs as high as 25 percent on Chinese exports.  Other products assembled in China also contain significant Korean content.  For example, the screen on the new Apple iPhone XS is made by either Samsung or LG.  The Korean stock market frequently gyrates at any movement in U.S.-China trade talks – up when negotiations progress and down when discussions stall.  The two sides have given themselves until March 1, 2019, to conclude a successful agreement.

However, many of the irritants in the U.S.-China trade relationship are deep and foundational problems to the Chinese economy and most likely cannot be cured in less than three months.  If an agreement is reached that just makes marginal changes on the edges, such as a commitment by China to purchase more U.S. products or lowering the tariff on imported autos, then the U.S., and by extension, Korea, will continue to face long-term economic challenges from China.  If the U.S. acts in concert with other nations that have similar concerns about unfair and trade-illegal Chinese practices, then multilateral action can spark necessary reform to China’s economy.  However, if the talks break down and the U.S. continues to act alone by imposing more and more tariffs irrespective of how it affects constituencies in the U.S. or other nations like Korea, China will ironically gain the moral high ground as the defender of free trade and unnecessarily delay the market-oriented changes the free world needs to see take place in China.

U.S.-Korea Cooperation in the Indo-Pacific

The “Free and Open Indo-Pacific Strategy,” first introduced over a year ago, now underlies Washington’s approach to the region. South Korea has yet to officially join the strategy nor is it likely to in 2019 due to concerns in Seoul that it could be interpreted as “containing” China or even forcing its hand to choose between Beijing and Washington. However, the overlapping goals between the Indo-Pacific Strategy and the Moon administration’s “New Southern Policy” provide new opportunities for both the U.S. and South Korea to work together beyond the Peninsula.

Both visions focus on increasing engagement with South and Southeast Asia on many of the same key issues based on the same core values, albeit in different ways. The clearest means to bridge the two is through infrastructure projects. The U.S. is looking to mobilize large, high-standard loans and the quality and cooperative nature of South Korean loans, Seoul’s efforts to direct more development assistance to ASEAN countries and India, and the competitiveness of Korean firms in building modern infrastructure make South Korea an ideal partner in achieving this goal. In 2019, look for Seoul and Washington to cooperate on infrastructure projects in the region as well as highlight their joint efforts.

Improving the Environment in South Korea

Although air pollution arose as an issue during the 2017 presidential election, leading candidates at the time focused largely on expanding dialogue with China and remained quiet on domestic sources of this public health threat. The issue returned with a vengeance this past November when extreme levels of ultrafine dust forced Seoul to restrict the number of vehicles on the road and construction. This comes at a particularly awkward time for the Moon administration, which responded to public concerns following the 2011 Fukushima Daiichi disaster by promising to phase out nuclear power in Korea.

Absent nuclear power, cleaner energy could be drawn from natural gas, which South Korea has been importing in increasing amount – particularly from the United States. However, this exposes Korea to geopolitical issues and market volatility. The Moon government is also making a big push to increase renewable energy capacity.

At this juncture, South Korea may consider looking to Taiwan – voters there rejected the phase-out policy in a referendum this year. With nuclear energy satisfying both clean air and energy security, this issue is poised to be revisited by both the government and the public in 2019.

South Korea’s Income Lead Growth/Job Creation

The state of the economy remains the biggest source of concern for South Koreans. After taking several months to get up and running, the first full year of the Moon administration’s income-led growth agenda has fallen short of its ambitious goals. Responding to his falling approval rating in light of underwhelming initial results that have increasingly become a major issue of public debate, President Moon has devoted more government resources to his economic agenda this year. However, the key question for 2019 is will this be enough to win back public support and reinvigorate the economy?

Moon’s income-led growth strategy is a novel approach to resolving the stubborn structural issues in the economy, but this also means it is largely unproven. The IMF and OECD support the agenda’s increased social spending, particularly given the government’s fiscal space, but these policies must also start creating jobs and bolstering growth to be sustainable. Even if the agenda is on the right path, the window to push it through may be closing. More interest rate hikes by the Federal Reserve and the prospect of worsening trade tensions between China and the U.S., both of which have already impacted the economy, could make it harder for Moon’s agenda to find more success this year.

The #MeToo Movement and Women’s Right 

Heightened advocacy for women’s rights was a global trend in 2018. In South Korea, the #MeToo movement gained momentum with women stepping forward with allegations of sexual harassment and violence against high-profile figures, including presidential-hopeful Ahn Hee-jung, poet Ko Un, and award-winning movie director Kim Ki-duk. However, advocates faced obstacles ranging from a relatively lenient legal code to deeply-entrenched social attitudes. Providing further proof of the current society’s antipathy to women’s concerns, the brave actions of women who came out publicly with testimonies of abuse – despite receiving international attention – resulted in very few prosecutions.

Korean women last year also confronted a proliferation of hidden cameras, which prompted protests demanding stronger punishment for trafficking of digital material that was filmed without consent. In response, the government has so-far announced tougher punishments for trafficking of these materials and announced plans to better police online sex crimes and remove illegal footage from the internet more swiftly. These will go hand-in-hand with broader protections such as extensions to the statute of limitations in sexual abuse cases and measures that would allow victims of harassment and abuse to report these crimes anonymously.

Notwithstanding, many advocates recognize that strengthening the legal system is a necessary but insufficient means to achieve true social change. With many women’s rights organizations now mobilized in the wake of the scandals in 2018, open debates about how cultural attitudes will be reformed will likely intensify in 2019.

Bonus Issue: Will Kim Jong-un Go to Seoul?

At their summit meeting in Pyongyang, Kim Jong-un agreed to Moon Jae-in’s proposal that he visit Seoul before 2018 ended. Kim never took that trip, but in his recent letter to Moon he expressed a desire to meet with Moon frequently in 2019 and “a strong determination to visit Seoul while watching future situation.” Whether Kim makes that trip will be one issue that many will be watching in 2019.

It is not surprising that Kim did not meet with Moon in Seoul in 2018. With progress in talks with the United States stalled and his meeting with Trump postponed until early 2019, there would have been little that Kim could have achieved in Seoul. Any trip to Seoul in 2019 will likely be dependent on how Kim’s next meeting with Trump goes and whether there is any historical progress Kim can make in Seoul. He will likely want to achieve more that than act of a North Korean leader visiting Seoul for the trip to go forward.

Beyond whether Kim will visit Seoul will be the question of how his visit is received. At the moment, Kim’s image has improved in South Korea with the current diplomacy and 60 percent of South Koreans would have supported the trip if he had taken it in December. One issue to watch from any visit will be whether it builds support for inter-Korean ties among South Koreans or causes them to reassess the current opening with North Korea?

Mark Tokola is the Vice President of the Korea Economic Institute of America, Phil Eskeland is the Executive Director of Operations and Policy, Troy Stangarone is the Senior Director for Congressional Affairs and Trade, Yong Kwon is the Director of Communications, Kyle Ferrier is the Director of Academic Affairs and Research, Sang Kim is the Director of Public Affairs and Intern Coordinator, and Juni Kim is the Program Manager and Executive Assistant. The views expressed here are the authors’ alone.

Image created by Juni Kim.

By Troy Stangarone

If 2017 was the year of “fire and fury,” 2018 saw the United States and North Korea turn from the rhetoric of war to diplomacy as U.S. President Donald Trump met North Korean Chairman Kim Jong-un at the first ever U.S.-North Korea summit in Singapore.

If 2018 was the year the diplomacy on the Korean Peninsula, it was also a year of frustrations as the United States and North Korea have been unable to make progress on agreeing to a path towards the dismantlement of North Korea’s nuclear weapon and missile programs, or in taking steps to build the new relationship promised in Singapore. With U.S.-North Korea relations stalled, North-South relations have been unable to move forward at the pace hoped for despite more extensive agreements on inter-Korean cooperation.

While North Korea dominated the headlines in 2018, the past year began with South Korea’s successful hosting of the Winter Olympics. It saw the United States and South Korea agree to revise the U.S.-Korea FTA (KORUS), but South Korea also become caught in the United States trade war with China. The United States and South Korea also failed to reach an agreement on burden sharing.

On the domestic front, the Moon Jae-in administration implemented a series of new policies to advance an income lead approach to economic growth, but so far has yet to see the results hoped for from its reforms.

As we take our annual look back at the events that helped to shape the Korean peninsula during the past year, it is also an opportunity to review the events we highlighted on The Peninsula in our annual 10 Issues to Watch for on The Korean Peninsula in 2018 blog and the events we didn’t see coming.

Looking back, we largely touched on what would be the key issues on the Korean peninsula in 2018, but we missed on the sudden shift to summit diplomacy on the Korean Peninsula and what in one poll has been identified as the top news story in the United States in 2018 – the summit meeting between Trump and Kim. Here are the issues we identified:

1. Could War Break Out on the Korean Peninsula?

Coming into 2017, tensions between the United States and North Korea had been growing. Pyongyang’s December 2017 inter-continental ballistic missile (ICBM) test demonstrated it had the ability to reach anywhere in the continental United States, even if it had not yet completely mastered ICBMs. Despite the increasing threat of war, we were largely right in our analysis when we said that “war can, and most likely will, be avoided as long as cooler heads in Washington and Pyongyang prevail.” What we largely didn’t foresee is that war would be avoided not just because “cooler heads” would prevail, but that would lead to a year of North Korean summits with South Korea, China, and the United States.

2. The Advancement of North Korea’s Nuclear and Missile Programs

With the movement towards dialogue between the United States and North Korea, our prediction that North Korea would continue to test missiles fell flat. For all of 2018, North Korea refrained from conducting missile tests to either demonstrate new capabilities or to express its displeasure at the progress of talks with the United States. At the same time, there is every indication that our second prediction was correct. Kim Jong-un pledged in his 2018 New Year’s Address that North Korea would continue to expand its supply of missiles and fissile material and has yet to shut down its nuclear facilities at Yongbyon or its missile production facilities.

3. The Impact of Sanctions on North Korea

On the surface, sanctions have worked. Exports to China, North Korea’s primary trading partner have fallen to under $200 million through November. At the same time, despite sanctions causing declines in exports to China and other countries, there are signs that the markets are remarkably stable. In data published by DailyNK, the exchange rate and the price of commodities in markets have been fairly stable. Contrast this with Iran, where the U.S. withdraw has caused the Iranian Rial to drop in value. While the North Korean economy is not in a good position, the effect of sanctions seems to be less than many would have expected.

4. The 2018 Winter Olympics

By all measures the 2018 Winter Olympics in Pyeongchang were a success. South Korea finished tied for sixth for the most medals won, and concerns about attendance were ultimately relieved as the organizers came within their goal of selling 90 percent of the tickets. Most importantly, North Korea took part in the games easing concerns that it could disrupt the festivities and its participation helped to jump start a year of diplomacy.

5. Special Measures Agreement/Burden Sharing

The United States and South Korea have yet to conclude discussions on a new Special Measures Agreement to determine how much South Korea will contribute to the non-personnel costs of U.S. troops in South Korea. While the failure to conclude an agreement has not yet affected the alliance, the current agreement expires at the end of 2018. Indications are that the talks are stalled over an insistence by the Trump administration that South Korea raise its contribution to burden sharing by potentially twice as much as South Korea was previously contributing.

6. U.S.-Korea Trade Policy

The United States and South Korea were able to quickly reach an agreement on modest adjustments to the KORUS FTA. With the National Assembly having approved the changes and the U.S. trade deficit with Korea continuing to decline, the concerns around the KORUS FTA have begun to dissipate.

However, the KORUS FTA was not the only trade issue in the U.S.-Korea economic relationship. As we noted last year, the U.S. used a Section 232 national security investigation to push South Korea into agreeing to a quota on its steel exports to the United States equal to 70 percent of its shipments over the last three years, and also imposed tariffs on Korean washing machines as part of a safeguard case. South Korea may not be out of the woods yet, as a decision will likely come on a Section 232 case on automobiles and automotive parts early next year. South Korea is only major automotive producer to not receive some type of assurance that it will not have tariffs imposed on its exports if automotive imports are found to have national security implications.

7. Will China’s Economic Pressure on South Korea Over THAAD End?

As we foresaw at the beginning of the year, China’s pressure over the decision to deploy THAAD has moderated rather than disappeared. Despite South Korea and China agreeing in October of 2017 to normalize economic relations, Lotte is in the process of closing its Lotte Mart stores in China, and the effects on tourism can still be felt. Based on the latest data from the Korea Tourism Organization, a bit more than 400,000 Chinese tourists traveled to South Korea in November. This is up from just under 300,000 at the same point last year. However, despite the increase in Chinese tourism in November, it is still below its pre-THAAD highs. All told, the South Korean economy has lost more than $13 billion from the decline in Chinese tourism alone.

8. Moon Jae-in’s Promised Economic Reforms

The Moon administration continued to implement its income lead growth policies in 2018 taking steps to shorten the work week and raising the minimum wage for the second year in a row. However, the results have been mixed, especially with slowing job growth in August and September. South Korea also saw estimates for its GDP growth in 2018 and 2019 revised down. Some of this revision is due to external factors, but declines in investment and job growth are also weighing on the economy. The new year will be an important period for determining whether the current challenges are due more to the markets adjusting to the new policies or whether the policies themselves will need to be adjusted.

9. South Korean Local Elections

The ruling Minjoo Party won a resounding victory in the 2018 local elections. The party won 14 of the 17 mayoral and gubernatorial posts up for grabs, as well as 11 of 12 by-elections for the National Assembly. Seoul Mayor Park Won-soon also won a third term as mayor.

10. Hallyu’s Ongoing Rollercoaster Will Continue

The growth of K-pop around the globe was one of the major stories in 2018, even being highlighted by the BBC as BTS became the first Korean group to enter the UK Top 40 and land in the top spot of the iTunes album chart in 60 countries. Despite still facing challenges in China as part of the fallout from THAAD, K-pop saw growth in Japan and in Latin American markets. However, the big success for K-pop came in its breakthrough in the United States. BTS had two albums reach the top of the Billboard 200 and three songs on the Billboard Hot 100. However, the success extended beyond BTS as four other Korean acts landed albums in the top 40 of the Billboard 200 and BLACKPINK saw its video Ddu-Du Ddu-Du gain the fifth most views on YouTube in a 24 hour period among all genres.

The Bonus Issue: Will There Be Constitutional Reform?

While the Moon administration pushed for a package on Constitutional reform to be concluded in time for the local elections, ultimately reform efforts stalled in the National Assembly.

Beyond the events that we expected, here is a look at some of the unexpected events that helped to shape 2018:

1. When Donald Met Jong-un

Prior to 2018 no sitting U.S. president had met with the leader of North Korea. That changed in 2018 as U.S. President Donald Trump altered the normal protocol of only meeting a foreign leader, especially one such as Kim Jong-un, until after a series of deliverables have been agreed to by both sides. The summit in Singapore produced an outline for moving relations forward, but there has been virtually no progress in talks with North Korea, despite the United States canceling military exercises with North Korea. In spite of the lack of progress, Trump has professed his goodwill for Kim saying “And then we fell in love, OK? No, really, he wrote me beautiful letters, and they’re great letters. We fell in love.”

2. Perceptions of Kim Jong-un in South Korea Improved – A Lot

If meeting a sitting U.S. president was an historic moment, it was preceded by Kim Jong-un being the first North Korean leader to cross into South Korea, even if only to the South Korean side of the DMZ. Your author was in Seoul at the time watching Kim cross the demarcation line live on his cell phone in a taxi to the National Assembly. What struck me at the time was lack of coordination on the North Korean side as the delegation walked to the DMZ and the lighthearted nature of Kim Jong-un as he invited South Korean President Moon Jae-in to briefly visit North Korea before their meeting.

Kim’s visit made an impression on South Koreans as well. Prior to the April Summit Kim had an approval rating in South Korea of 10 percent, though that rose to 31 percent after the summit. More impressive, after the summit a new poll found that 78 percent of South Koreans saw Kim as trustworthy. A degree of goodwill remains as 60 percent of South Korea would have welcomed Kim to Seoul had he come in December as expected.

3. Inter-Korean Relations

In addition to the April summit, Kim and Moon held two additional summit meetings – a second summit in the DMZ and Moon’s visit to Pyongyang. These summits resulted in the Panmunjom and Pyongyang Declarations which laid out steps to improve inter-Korean relations. While sanctions related to North Korea’s weapons programs have prevented significant movement on inter-Korea relations, the two Korea’s did take steps to advance relations in 2018. In addition to the summit meetings, the two Koreas held the first family reunion since 2015, took steps to reduce military tensions and implement a new military agreement in the DMZ, and conducted a joint survey and groundbreaking ceremony for a project to reconnect the railways on the Korean Peninsula.

4. North Korea’s Cyber Activities

North Korean has become one of the world’s most active cyber powers and despite the diplomacy with the United States and South Korea, Pyongyang kept up its activities in 2018. According to Group-IB, since the beginning of 2017 approximately two-thirds of the theft of cryptocurrency has been by North Korea, netting the regime $571 million. It also used the Pyeongchang Olympics and summit meetings with Kim Jong-un as potential bait for phishing attacks.

5. The U.S.-China Trade War

In a globalized world where countries are part of supply chains, tariffs are an imprecise tool and South Korea found itself one the countries most exposed to a trade war between the United States and China. More than 40 percent of South Korea’s GDP is accounted for by exports, while China and the United States are South Korea’s top two trading partners, respectively. For most of 2018, South Korea had managed the conflict fairly well by increasing exports to China and resolving the issues around the KORUS FTA. However, in the year’s last quarter South Korea began to see declining demand for its top export to China, semiconductors, while overall sales of automobiles began to decline significantly in China – signs that the effects of the trade war are beginning to set in.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade at the Korea Economic Institute of America (KEI). The views expressed here are the author’s alone.

Image created by Juni Kim is the Program Manager and Executive Assistant at KEI.

By Kathleen Stephens

Like many others, I have been inspired in recent days by the many remembrances of President George H.W. Bush, and his eventful and admirable presidency. Coverage of his foreign policy legacy unsurprisingly focuses on the dramatic late-Cold War scene in Europe, which culminated in the break-up of the Soviet Union and the reunification of Germany. Meanwhile, his policies on the Korean Peninsula have received little notice. But President Bush’s role in strengthening the alliance with a democratizing South Korea and engagement with North Korea in support of inter-Korean reconciliation and denuclearization should be reviewed and remembered. They remind us of the abiding strength of the U.S.-ROK alliance and the need to build on past experience and past efforts in confronting the challenges that are still with us.

I was working on post-Cold War issues in Europe during the George H.W. Bush administration, including a difficult tour in imploding Yugoslavia. But having departed Korea in 1989 after six years of diplomatic service there, I carried with me vivid memories of the movement for democracy that culminated in the democratic election through direct popular vote of Roh Tae Woo in 1987, and the successful-beyond-all-expectations hosting of the 1988 Seoul Summer Olympics. So I followed President Roh’s efforts to build on those successes, including his “Nordpolitik” policy of trying to broaden South Korea’s relations with the former “Soviet bloc” and China.

I’ve learned most about President Bush’s Korea policy through conversations spanning many years with two distinguished public servants and remarkable men: Donald Gregg, U.S. ambassador to the Republic of Korea from 1989 and 1993; and the late Hyun Hong Joo, ROK ambassador to the United States from 1990 to 1993. Fortunately, I don’t have rely just on my memory; KEI’s book “Ambassadors’ Memoir,” published in both Korean and English, discusses in vivid detail those dramatic years.

President Bush’s interest in Asia was deep. He had headed the U.S. Liaison Office in China during the critical period before full normalization of U.S.-China relations. As Vice President to Ronald Reagan, his national security advisor was Donald Gregg, one of the U.S. government’s top Asia experts. When he transitioned to the oval office, President Bush demonstrated his continued attention to the U.S.-Korea alliance by selecting Donald Gregg to serve as ambassador in Seoul.

Welcoming South Korea’s transition to democracy, in 1991 he invited President Roh to make a state visit to the United States, the highest form of official invitation that can be extended to a foreign leader, making President Roh the first South Korean leader to be so honored since Syngman Rhee in 1953.

President Bush also extended his support to South Korea’s efforts to build relations with Moscow, Beijing, and the countries of Eastern Europe. As retold by Ambassador Hyun, Seoul’s ultimate objective was to join the United Nations and create avenues to improve relations with Pyongyang. President Bush supported this approach. In addition to facilitating a meeting between President Roh and Gorbachev in San Francisco that helped pave the way to the establishment of formal diplomatic relations between the two countries in early 1991, President Bush supported the two Koreas’ membership in the United Nations, as articulated in his speech of the UN General Assembly on October 1, 1990:

We believe that universal UN membership for all states is central to the future of this organization… the United State fully supports UN membership for the Republic of Korea. We do so without prejudice to the ultimate objective of reunification of the Korean peninsula and without opposition to simultaneous membership for the Democratic People’s Republic of Korea.

This speech was notable because it not only represented an important step toward joint Korean admission to the United Nations, but also the first time an American President had referred to North Korea by its official name in a public speech. This helped set the stage for U.S. engagement with North Korea, which had intensified its pursuit of nuclear weapons in the post-Cold War aftermath.

Ambassador Gregg highlights in his memoir how he felt strongly that the United States would be in a “far better position to tell the North Koreans to stop their program of weapons development if [the United States] had no weapons on the scene.” Building on this insight, the Bush administration broke from U.S. policy of neither confirming nor denying the presence of nuclear weapons in a particular location, and announced on October 20, 1991 that the United States was withdrawing its tactical nuclear weapons from South Korea. Moreover, the White House unambiguously announced that there would henceforth be no nuclear weapons in South Korea. The White House also expressed its hope for reciprocal gestures from North Korea, including allowing international inspection of its nuclear plants.

In an additional step to build the atmosphere for dialogue and negotiation with Pyongyang, the U.S. announced the cancellation of the coming year’s “Team Spirit” joint military exercises in late 1991, long a source of loud complaint from the DPRK.

These steps helped pioneer discussions between Undersecretary of State for Political Affairs Arnold Kanter and Kim Young Sun, secretary for international relations of the Korean Workers’ Party, in January 1992 (although unfruitful). Inter-Korean dialogue also found its footing, resulting in two important agreements between the ROK and the DPRK:  the “Basic Agreement” on December 13, 1991, which pledged both countries to work towards “reconciliation, non-aggression, exchanges, and cooperation” and the “Joint Declaration of the Denuclearization of the Korean Peninsula,” signed on January 20, 1992.

I won’t try to tell the longer story here on why denuclearization, peace, and reconciliation failed to take root during these years. What matters is that efforts continue, as they must. As we remember President George H.W. Bush, I hope and trust that engagements will continue to be informed by the spirit and principles that informed that period: The foundation of the strong values-based alliance between Seoul and Washington, a commitment to ridding the Korean peninsula of nuclear weapons, and to a process of peace and reconciliation.

Ambassador Kathleen Stephens (ret.) is the President & CEO of the Korea Economic Institute of America. Ambassador Stephens was a career diplomat in the United States Foreign Service from 1978 to 2015. She served as U.S. Ambassador to the Republic of Korea between 2008 and 2011.

By Phil Eskeland

There is wide-spread support for strong and close relations between the U.S. and the Republic of Korea (ROK).  South Korea has grown and prospered since the immense sacrifice made by the U.S., South Korea, and others in the international community during Korean War, and emulates America’s model of democracy, political freedom, and free markets.   Korea’s soft power has dramatically flourished as well in recent years in which many Americans, particularly millennials, have a strong affinity for Korean food and K-pop music.  Rapidly rising Korean investment in the U.S. during the past decade, employing a growing number of Americans, further assists the positive image of Korea, particularly in areas in “fly-over” country that have seen tough times and been overlooked by others.

This support is reflected in Congress.  Unlike some areas in U.S. trade policy, the Korea-U.S. Free Trade Agreement (KORUS FTA) passed by wide bipartisan margins in 2011.  Legislation to strengthen sanctions against North Korea have passed Congress by near unanimous vote.  Earlier this year, Congress even added an amendment by unanimous consent to the annual defense bill that limited the ability of the President to unilaterally withdraw U.S. troops from the Korean Peninsula below a certain level.

Yesterday’s mid-term elections produced a result that has not been seen in Washington since 1981 when President Ronald Reagan had to deal with a Democrat-controlled House of Representative, led by Speaker Tip O’Neil of Boston, Massachusetts (“all politics is local” is his most notable quote), and a Republican-controlled Senate, led by self-effacing Senator Howard Baker of Tennessee.  However, unlike the situation faced by President Reagan in 1981, President Donald Trump cannot count on 30 or 40 “boll weevil” or conservative Democrats to join with House Republicans, serving in the minority, to enact more of his agenda.  While some of the newly elected representatives may eventually join the boll weevil successor Blue Dog coalition, there are currently only 18 House Democrats listed as members of this caucus.  In addition, Congress has dramatically changed during the past 30 years in which Speaker Nancy Pelosi, unlike Speaker O’Neil, would control the House floor so effectively that it would preclude renegade Democrats from coalescing with Republicans to pass anything substantial over the leadership’s objections.

What can be expected over the next two years is a return to gridlock and more Congressional investigations and oversight of the Trump Administration.  While there may be certain exceptions, such as enactment of an infrastructure bill, there will be focus by many of the new committee chairmen in the House to reverse what they felt was negligence on the part of previous Republican chairmen to properly oversee the activities and programs of the Executive Branch.

This investigative spirit may spill over into the Foreign Affairs Committee.  Observers of Korea policy will miss retiring Chairman Ed Royce, who because of his constituency and location of his southern California district, was a strong advocate for a deeper understanding of Asia and, specifically, the U.S.-Korea alliance in Congress.  Representative Elliot Engel (who comes from the other side of the United States, representing neighborhoods in northern Bronx and southern Westchester County of New York), will become the chairman of the Foreign Affairs Committee next January.  While Chairman Royce was careful to cultivate a bipartisan approach to issues affecting the Korean Peninsula, particularly during the tumultuous Trump era, Democrats may be torn between their desires for a peaceful and diplomatic solution to the North Korea nuclear issue and their deep skepticism of the Trump Administration’s overall approach towards foreign policy, particularly in light of Trump’s decision to terminate the Iran nuclear deal.  Any deal with North Korea on denuclearization would have to be vastly superior to the Iran nuclear agreement.  Thus, if the Trump Administration agrees to gradually lift some sanctions before there is complete, verifiable, irreversible dismantlement (CVID) of North Korea’s nuclear program, Congressional Democrats may pounce on the deal as incomplete and blame Trump’s incompetency as a negotiator.  This opposition would escalate even further if at some point in the next two years, President Trump decides to withdraw from negotiations with North Korea and threatens kinetic action to pressure North Korea.

In addition, if this scenario plays out, Senate Republicans may also feel a need to separate themselves more from the Trump Administration, particularly as the next election season gets closer to 2020 and if any deal with North Korea falls short of CVID.  The next chairman of the Senate Foreign Relations Committee, Senator Jim Risch of Idaho, comes from a background of service as the Chairman of the Near East Subcommittee and also as a member of the Select Committee on Intelligence.  One test of this proposition is to see if the Asia Reassurance Initiative Act (S. 2736) passes Congress during the upcoming “lame duck” session because it contains a provision that clearly lays out a marker that the objective of U.S. policy towards negotiations with North Korea is the complete, verifiable, irreversible dismantlement of not only its nuclear but also its ballistic missile programs.

It is unclear if Senators Cory Gardner and Ed Markey, who are the main co-authors of S. 2736, will continue serving as the respective chair and ranking member of the East Asia Subcommittee in the next Congress.  Nonetheless, expect policy continuity on Korea-related matters regardless of who serves as chairman of this subcommittee with the possible exception of libertarian-leaning Senator Rand Paul of Kentucky.

One final note: a bright spot from yesterday’s mid-term election was the apparent election of Young Kim to succeed retiring Representative Ed Royce of the 39^th District of California. If she is able to maintain her lead, this will be the first time in 20 years that a Korean American has served in the U.S. Congress. Even being in the minority, she may take on a leadership role that Representative Royce has undertaken these past 26 years to strengthen and deepen the U.S.-Korea alliance, in part because of her heritage but also because of her constituency and the economic interests of the district. Andy Kim is also locked in a tight race with Rep. Tom MacArthur in New Jersey and could potentially be another Korean American to serve in the new Congress.

Phil Eskeland is Executive Director for Operations and Policy at the Korea Economic Institute of America. The views expressed here are his own.   

Photo from the Natig-Sharifov’s photostream on flickr Creative Commons.

By Phil Eskeland

Earlier this month, the Pew Research Center released its annual survey of America’s global image around the world.  What is fascinating about this report is that while the opinion of America, and in particular President Donald Trump, has remained relatively the same or declined among most countries of the world, the Republic of Korea (ROK) has been one of the few exceptions to this trend.

The most dramatic change has been the favorability rating of President Trump in South Korea.  In 2017, only 17 percent of South Koreans had confidence in President Trump to do the right thing in world affairs.  By 2018, his favorability rating dramatically jumped to 44 percent, representing a 159 percent increase.  No other country in Pew’s survey revealed such significant increase.  This may be explained by President Trump’s positive response to engage directly in talks with North Korean (DPRK) leader Kim Jong-un on denuclearization and offering a new path forward towards a permanent peace and better relations with the DPRK.  The only other nation that saw a sharp change in their opinion of President Trump was Russia, but it was in the opposite direction, going down from a 53 percent positive rating in 2017 to just 19 percent in 2018.  Regardless, there is still only a minority of South Koreans who expressed have confidence in President Trump.  However, President Trump’s favorability rating in South Korea is still higher than what President George W. Bush experienced in the 2000’s, ranging from a high of 36 percent in 2003 to a low of 22 percent in 2007.

While a majority in many countries still look favorably upon the United States, the numbers for many nations, particularly in Europe, declined.  However, for South Korea, America’s favorability rating increased from 75 percent in 2017 to 80 percent in 2018, to reach the third highest among all nations surveyed by Pew.  This level of support for America was similar to previous Pew surveys conducted during Barack Obama’s presidency and much higher than during the Bush presidency.

The Pew report also revealed that while positive public opinion of America increased in the ROK, South Korean views of China and of Chinese President Xi Jinping have deteriorated.  This may be partially explained by the tiff over the deployment in South Korea of the Terminal High Altitude Area Defense (THAAD) missile defense system to defend against the North Korean missile threat when China initiated a series of unofficial boycotts against South Korean products and services that negatively affected the South Korean economy.   In addition, China’s actions to assert itself in various sea and air territorial disputes with its neighbors, along with reaffirming support for North Korea after several years of strained relations may have also contributed to a falling negative perception of the PRC and its leader among South Koreans.

One other interesting question from the Pew Survey attempts to measure whether or not the U.S. takes into account the interest of other countries in the formulation of its international policy.  Most citizens in other countries disagree that America does so, including South Korea.  In Asia, the Pew survey only found citizens in the Philippines answering this question affirmatively more than a majority of the time.  For South Korea, at no time in previous surveys did most of South Koreans believe the U.S. took their country’s interest into account, even when President Barack Obama was in office.  However, the most recent trend shows opinions on this question in South Korea returning to the time when President George W. Bush was in office despite President Trump’s effort to engage in direct talks with North Korea.  Perhaps this is a result of a few decisions President Trump has made that did not appear to take South Korea’s concerns to heart, such as the imposition of higher U.S. tariffs on certain Korean-made products, repeated threats to pull out of the Korea-U.S. Free Trade Agreement (KORUS FTA), and suspending large-scale joint U.S.-ROK military exercises.  Perhaps this is a result of an uneasy feeling among some South Koreans that the U.S. primarily cares about defanging the nuclear and international continental ballistic missile (ICBM) threat from North Korea and not about other aspects important to inter-Korean dialogue that are of equal importance to South Korea.  President Trump’s rhetoric on America First may have also influenced public opinion in South Korea to conclude that America will look only after its self-interest and the concerns of other nations are of secondary importance.

Nonetheless, it is interesting to observe in the Pew survey that while confidence for President Trump dramatically increased among South Koreans, they still expressed skepticism that the U.S. would truly protect the interests of South Korea when making international policy.  Perhaps it is natural that no one should expect that one country would prioritize another country in determining its national interest.  However, the majority of citizens in some countries, such as the Philippines and Israel, believe the U.S. seriously takes their interests when deciding foreign policy matters.

The outcome of negotiations with North Korea will most likely determine whether or not the positive trend line of public opinion of America and its leader in South Korea will continue.  If the U.S. and South Korea cooperate closely on reaching a new understanding and agreement with North Korea, not just on denuclearization but on the overall approach to engaging with North Korea, support for the U.S. and President Trump in South Korea should continue to grow.  However, if U.S.-North Korea talks do not reach the aspirations anticipated by many South Koreans, then expect a reversal of this trend in next year’s Pew survey.

Phil Eskeland is Executive Director for Operations and Policy at the Korea Economic Institute of America. The views expressed here are his own.  

Photo from the Republic of Korea’s photostream on flickr Creative Commons.

By Kyle Ferrier

There has been growing concern a gap is emerging between Washington and Seoul over relations with Pyongyang.

Anxiety about a rift in the alliance seemed to grow after President Trump on Friday, August 31^st cancelled Secretary of State Michael Pompeo’s trip to Pyongyang on the following Sunday. A South Korean envoy subsequently met with North Korean leader Kim Jong-un in Pyongyang where it was announced that South Korean President Moon Jae-in would meet with Kim from September 18^th to 20^th. The prevailing cause for concern with this turn of events seems to be Washington could return to a hardline policy, while Moon could push ahead with opening the North on his own, creating a crisis in bilateral relations.

If this gives you déjà vu you’re not alone. Whether a rift exists between America and its allies is a perennial topic of discussion, one which South Korea often finds itself as the center of attention. Circumstances may feel different each time the conversation flares up, but one must always ask the question “is this time actually different?”

Leaders in the Blue House and White House have often had contrasting agendas on North Korea in the past, at times resulting in observable tension, though the alliance has advanced nevertheless. What may be different about the Moon-Trump dynamic is that while Moon can be compared to previous pro-engagement presidents Kim Dae-jung and Roh Moo-hyun, Trump’s disruptive foreign policy is unlike any other U.S. president since the start of the alliance.

The alliance is more than personalities and political objectives, but even so there is a disconnect between how Moon and Trump are characterized and what each has actually done.

In Moon’s case, he has been dogged by criticisms that he is too optimistic and trying to push for opening North Korea too quickly, especially as it relates to inter-Korean economic projects. There is significant unease in some circles that Moon’s approach to North Korea is the return of the “Sunshine Policy” by another name and will inevitably clash with the United States.

The “Sunshine Policy” was built on the process of up front concessions to beget positive change in North Korea later down the road. This resulted in major political developments, such as the two inter-Korean summits, and economic initiatives, including the Kaesong Industrial Complex and the Mount Kumgang Tourist Region. Politically, there are clear similarities between Moon’s current approach and “Sunshine” presidents Kim and Roh. Economically, however, there has so far been a major break from his predecessors.

Moon has done summits, but even though he has been vocal about joint economic projects nothing significant has been realized to date. He has even played a role in strengthening UN sanctions that severely limiting South Korea’s options to engage with the North. Going ahead on his own with economic initiatives as some fear would incur major diplomatic costs, and consequently economic costs as well. Moon has frequently suggested that breaking ground on these projects would occur after more substantive progress on the peace and denuclearization process. He has conformed to the realities of South Korea’s situation, despite what he may want to do otherwise.

Moon’s inter-Korean economic projects are also not much different from previous South Korean presidents in recent memory, including conservatives. His plan to build an inter-Korean railroad that would link to rail networks in Northeast Asia, granting South Korea rail access to as far away as Western Europe, has been a staple of recent South Korean presidents. President Moon’s 2017 Berlin speech in which he outlined his plans for economic reconciliation with the North bears a striking resemblance to former president Park Geun-hye’s 2014 Dresden address. The biggest change with Moon is that he has a more optimistic outlook, not completely unfounded given the shift in North Korean behavior this year, but that has not yet translated into economic policy outcomes.

Trump on the other hand has been painted as a hardliner. Despite being the only president to have met with Kim Jong-un, and the only one to offer such effusive praise for the North Korean regime, Trump’s return to an aggressive stance is seemingly an ever-present threat. Though, even his most aggressive policy on North Korea falls short of the rhetoric.

Maximum pressure has been the mantra of the White House when it comes to North Korea, but it has not truly lived up to its name. The administration has certainly ramped up on the pressure on North Korea, but it is short of what it is fully capable of doing. The White House seems to be holding on to a list of potential entities and individuals to sanction, gradually enacting them with each setback, such as the September 6 sanctions over “malign cyber activities” after Pompeo’s trip was cancelled. Early in the administration’s tenure, former U.S. secretary of state Rex Tillerson said “strategic patience has ended,” but it seems as if it just has evolved under Trump, also reflecting heightened risk after North Korea’s additional ICBM and nuclear tests in 2017.

Calling Trump a hardliner may also be an oversimplification at this point. He is certainly less inhibited to take actions on his own, but he does not necessarily follow a traditionally right or left position on North Korea. Trump has had his fair share of aggressive comments on North Korea, such as “fire and fury” and those regarding a preventative strike option, but he has also taken some dovish actions, intentionally or not. While the reasoning behind the decision is highly questionable, Trump’s apparently unilateral move to suspend joint U.S.-South Korea military exercises is a softer approach to Pyongyang (though it may have only been intended to be hard on Seoul.)

As Kim Jong-un continues to lay on the charm, it seems less likely that Trump will completely scuttle the talks, particularly since there are still issues to work through, such as the return of Korean War remains, which can win political points at home. If anything, the concerns that Moon is willing to give too much to achieve short-term political objectives just as much applies, if not more so, to Trump. Understanding the real Moon and Trump will help to provide a clearer picture of the North Korea talks moving forward.

Kyle Ferrier is the Director of Academic Affairs and Research at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from Republic of Korea’s photostream on flickr Creative Commons.

by Phil Eskeland

Earlier today, the Foreign Trade Division of the U.S. Census Bureau revealed the latest set of monthly trade statistics.  The September release of July trade figures gives an opportunity for a mid-year review on trends not only in goods, but also in services trade with all nations of the world, including South Korea.  In today’s release, information about 2nd Quarter services trade statistics was made publicly available. [1] 

Not only did the six-month bilateral goods and services trade deficit between the U.S. and South Korea decline by 73 percent as compared to last year, but this continues a trend that began mid-2016.  The main reason for the dramatic decline in the overall bilateral trade deficit is the sustained growth in exports of both U.S. goods and services to Korea. America’s trade surplus in services to South Korea once again expanded this year by $355 million to reach $6.4 billion during the first six months of 2018.  U.S. exports of merchandise goods also continued its steady rise, increasing by 11.1 percent over the course of the first seven months of this year, particularly in the energy sector where thus far in 2018, the U.S. has exported $2.7 billion in oil and gas products to Korea $200 million shy of all oil and gas exports in 2017.

Korea is now ranked ninth – behind countries such as France, Italy, Japan, and Mexico – in terms of nations with any significantly measurable trade deficit with the United States.  Only Korea and India reduced their overall YTD 2018 trade imbalance with the United States. However, for India, the trade deficit reduction only amounted to a modest 2.4 percent decline.

This action all took place before any changes to the Korea-U.S. Free Trade Agreement were finalized and implemented.  This demonstrates once again that South Korea is a strategic and valuable ally not just on security matters, but also on trade.  As the Trump Administration considers possible further action on trade, it is important to bear in mind that the Republic of Korea is America’s only major trading partner and ally that has taken concrete action to significantly reduce its trade imbalance with the United States.  

Phil Eskeland is Executive Director for Operations and Policy at the Korea Economic Institute of America. The views expressed here are his own. 

Photo from Cycling Man’s photostream on flickr Creative Commons.

[1] Quarterly data on services trade is only available from 2013 onward.

By Mark Tokola

First, there was widespread relief that we finally have a new Ambassador to South Korea, retired Admiral Harry B. Harris. It has seemed more than odd not to have had an American Ambassador in Seoul during the eventful past year-and-a-half. Then, commentators began speculating on the meaning of this particular appointment. One Korean friend asked me if it didn’t send a very mixed message to be sending a formerly high-ranking military officer as Ambassador at the same time the Administration is pursuing a diplomatic path with North Korea. Doesn’t that show a lack of faith in the peace process?

My answer to the question was that at a time when we are managing the postponement or scaling back of joint military exercises; when we must be particularly insightful regarding the balance of forces (including weapons of mass destruction and cyberwar capabilities) between North Korea and the alliance; and when the security relationship between the United States and the Republic of Korea may be evolving, military experience probably is exactly what is needed.

That said, Ambassador Harris is not going to Seoul to represent the Pentagon or the uniformed services. As Ambassador, he will be responsible for the full range of diplomatic relations between the United States and South Korea and will work under the direction of the Secretary of State as well as of the President. The individual responsible for military-to-military relations will continue to be the four-star officer who serves as Commander U.S. Forces Korea (USFK), the United National Command (UNC), and the Combined Forces Command (CFC).

Although a Naval Officer from the time he graduated from the Naval Academy in 1978 until he retired as Commander of the United States Pacific Command (PACOM) in May 2018, that does not mean that Ambassador Harris is unfamiliar with the “big picture.” While Commander of the U.S. Pacific Fleet and then as PACOM Commander, Ambassador Harris has spent the past five years closely following all events of significance in Asia, political and economic as well as military. He will bring a rich and up-to-date experience to the job – frankly, far more than most new ambassadors.

It’s worth noting, too, that like many of the most senior U.S. military officers, he has spent part of his career outside of narrowly military affairs: he studied international relations and the ethics of war at Oxford University and at Georgetown University, where he was a Fellow in the School of Foreign Service. We have had a string of high-caliber and effective American Ambassadors in Seoul over the years, that seems to be continuing.

Mark Tokola is the Vice President of the Korea Economic Institute of America. The views expressed here are his own.

Photo via Yokota Air Base.

By Kyle Ferrier

It may have just been bravado to further his image as a tough negotiator, but President Trump’s comments suggesting that the withdrawal of U.S. troops on the Korean Peninsula may be on the table is problematic to say the least. Leaked comments from a private fundraiser on Wednesday revealed the president stated, “We have a very big trade deficit with [South Korea], and we protect them.” He further went on to say, “We lose money on trade, and we lose money on the military. We have right now 32,000 soldiers on the border between North and South Korea. Let’s see what happens.” The claims about the trade deficit are nothing new, despite significant evidence to the contrary, nor is the president playing security and economic issues off one another. However, if the president thinks he can leverage U.S. troops in Korea for any political or economic gain he is woefully mistaken.

The U.S.-South Korea military alliance is the backbone of the bilateral relationship. “Forged in blood” by the Korean War, the alliance continues to serve the shared interest of both countries through stabilizing the region as well as promoting economic openness and, since the late 1980s, liberal democracy. While the spread of communism is no longer the threat it was perceived to be during the Cold War, the North Korean threat remains, which is why even though South Korea is one of the world’s most advanced countries, the military component of these ties is vital. One of Trump’s biggest criticisms of the bilateral relationship is that South Korea has gotten away with exploiting the U.S. economy because of security concerns, yet the necessity of the alliance arguably helped to create a fairer trade deal for the United States. The alliance has also been the gateway to cooperation in a number of other global issues such as in space exploration, global health, and cybersecurity.

The closest the U.S. has ever been to withdrawing troops from the peninsula is also not coincidently the lowest point in U.S.-Korea relations. From 1977 to 1979, President Jimmy Carter was seriously considering the gradual removal of all U.S. troops from the peninsula over the South Korean government’s human rights record. The issue was a source of great consternation between the two governments and stoked Korean fears of abandonment. In the end, only about 3,000 troops left South Korea because the North Korean military proved to be a larger threat than previously thought. The potential for further withdrawal was resolved on its own after Carter pushed the decision back to 1981 in what would have been his second term in office, but by then there was new leadership in both Seoul and Washington.

Flash forward to today, the North Korean threat is similar in many ways but the evolution of Pyongyang’s nuclear and missile programs greatly raise the stakes for Washington. As a treaty ally, the United States is bound to defend South Korea in case of an attack. Thus, everything the alliance encompasses—including the 28,500 U.S. troops in South Korea, joint military exercises, and the U.S. nuclear umbrella—acts as a deterrence against North Korean aggression. Should this disappear now, tied to a negotiating tactic on trade or otherwise, South Korea would be at tremendous risk. This would jeopardize all of the added benefits the U.S. receives from relations with South Korea, including economic gains from bilateral trade as well as from regional stability. This is the same as it would have been in the late 1970s, though the benefits now are much are larger than they were 40 years ago. The biggest difference now, however, is North Korea is almost, if it isn’t already, capable of reaching the United States with a nuclear weapon. While the threat of military retaliation after an attack on the U.S. is undoubtedly a deterrent, this could easily be weakened if the U.S. were to abandon South Korea. After all, deterrence is a combination of both will and capability. Should the first half be questioned, Pyongyang could be emboldened to strike first.

Even if the president was trying to talk tough and has no intention to formally bring the issue up with Seoul, let alone follow through on it, the public discussion of troop withdrawal could have disastrous implications for U.S. interests. There is a confluence of factors, such as the return of great power politics between Washington and Beijing, now influencing Seoul that could force it to go off the well-worn path of firm resolve and close coordination with the United States. Though this is still the best way forward as CFR’s Scott Snyder argues in his new book “South Korea at the Crossroads,” should its feasibility come into question, Seoul may look to pursue other options even before the U.S. takes any action. Many of these options—such as obtaining nuclear weapons, which has gained some popularity in recent months, and closer ties with Beijing—would not only run counter to U.S. interests in the region, but on the global stage as well.

The best course of action for President Trump would be to immediately walk back the comments he made at the fundraiser and reaffirm the strength of the alliance by using well-trodden language, such as calling it “ironclad” and claiming there is “no daylight” between the two countries. At the very least it would be wise to quietly let this idea die. Trump may think it is a power play at the negotiating table, but should he pursue this further, he would actually be raising the white flag to Pyongyang and Beijing. He would risk setting off a chain of events that would ultimately put the U.S. in a worse position on trade with South Korea and at a strategic disadvantage in dealing with the most pressing regional security threat and global rival.

Kyle Ferrier is the Director of Academic Affairs and Research at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from Expert Infantry’s photostream on flickr Creative Commons.

By Phil Eskeland

After much pressure, the U.S. Department of Commerce just released the study on the effect of imports of steel on U.S. national security that will form the basis of President Donald Trump’s upcoming decision to impose higher tariffs.  The President has until April 11, 2018, to choose among several options outlined in the report.

This report is in contrast to a similar report prepared by the Commerce Department in 2001 that found no rationale for imposing higher tariffs on steel to protect U.S. national security.  As a result, the 2018 report spends a significant amount of time explaining the difference between the two reports.  Fundamentally, the 2018 report vastly expands the definition of “national security” to an all-encompassing general economic welfare interpretation that goes well beyond what most observers would truly consider items needed for national defense.  As a result, this report sets a bad precedent for other nations of the world to claim a “national security” exemption to World Trade Organization (WTO) and free trade agreement (FTA) rules as a rationale to raise tariffs in order to protect key industry sectors.  This would significantly reduce opportunities for U.S. exporters to sell their goods and services abroad.

The report provides one of three broad alternatives in the effort to boost U.S. steel production from its present 73 percent capacity to 80 percent:

• Raise tariffs on all steel importers to at least 24 percent;
• Raise tariffs on 12 countries, including South Korea, to at least 53 percent and freeze steel imports from all other countries at the 2017 levels; or
• Impose a quota on all countries to equal 63 percent of each country’s 2017 exports to the United States.

These restrictions would be above and beyond the existing anti-dumping (AD) and countervailing duties (CVD) already in place.  Part of the rationale for enacting these tariff measures is to assist domestic steel producers avoid the costly process of filing AD and CVD cases.  However, that means this industrial sector does not have to prove material injury in an open and transparent process in order to receive a trade remedy.

The report also recommends putting an administrative process in place to allow the Secretary of Commerce to provide exemptions to these tariffs on a case-by-case basis if there is insufficient capacity among domestic steel producers to provide the product to customers or for national security reasons.  As a result, manufacturers that use steel in their products will be spending an exorbitant amount of time and money filing petitions to receive relief from these tariffs.

These recommendations ignore recent economic history when in 2002, President George W. Bush imposed tariffs, ranging from 8 to 30 percent, on steel as part of a Section 201 “safeguard” investigation.  As a result, the cost of this safeguard measure outweighed their supposed benefits, both in terms of jobs and GDP, not including the rebuke the WTO gave to the U.S. when President Bush had to prematurely remove the tariffs to avoid trade penalties on other U.S. industry sectors.

The grouping of these 12 countries as part of Alternative #2 makes little sense.  Most of these countries increased their steel exports to the United States between 2016 and 2017.  However, South Korea, along with China, Turkey, and Vietnam experienced a decrease in steel exports to the United States, while the imports from the rest of the world increased by 15 percent.  In addition, several countries with dramatic increases in steel exports to the United States during the past year were not included in the list, including Portugal (528% increase), Serbia (327% increase), the Philippines (272% increase); and Argentina (161% increase).  Plus, a nation that is not on friendly terms with the U.S. – Belarus – is omitted from this list, even though its steel exports to the U.S. grew by 26 percent.  If the purpose of a Section 232 investigation is to limit imports of a certain product critical to U.S. national security from a potential adversary, excluding Belarus is a major oversight.

Finally, several countries are excluded from Alternative #2 even though exports from their country have increased between 2016 and 2017.[1]  Top steel exporters to the U.S. include Canada (increased 11%); Mexico (increase 16%), Germany (24% increase), and Taiwan (15% increase).  Only Japan experienced a decrease (11%) in its steel exports to the United States.   Thus, it is unclear why these major steel exporting countries were not included even though South Korea and Costa Rica (another one of the 12 countries listed in Alternative #2) also have a free trade agreement with the United States.

South Korea is a strong ally of the United States.  Historically, 83 percent of South Korea’s imports of military hardware have come from the United States.  South Korea has sacrificed over 5,100 of its military service personnel standing side-by-side with the U.S. in all of its major military conflicts since the Korean War.  The bilateral merchandise trade deficit between the U.S. and South Korea dropped by 17 percent during the past year (while the deficit with the rest of the world grew 12 percent), and its steel exports to the U.S. declined as well.  South Korea has committed to purchase $57.5 billion in U.S. products in the coming years.  South Korea is an ally both in national security and in trade.  South Korea should not have been included on the list of targeted countries.

Phil Eskeland is Executive Director for Operations and Policy at the Korea Economic Institute of America. The views expressed here are his own. 

Photo from  SparkFun Electronics’ photostream on flickr Creative Commons.

[1] The 2017 statistics included in the January 11, 2018, report were estimates, because the 2017 goods trade data was not finalized until February 6, 2018.  Thus, Figure 2 on Page 28 of the 232 report containing the “annualized” 2017 data, does not have the final 2017 numbers.  To obtain the most recent information, reference should be made to the Steel Import Monitor on the website of the Commerce Department.