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Trump Leverages Steel Tariff to Secure Trade Concessions from South Korea

South Korea has agreed to reduce restrictions on American auto imports, limit the amount of steel it ships to the U.S., and provide other concessions in exchange for an exemption from the Trump administration’s recently announced 25 percent steel tariff.

The modifications to U.S.-Korea Free Trade Agreement (KORUS), which are expected to be officially announced Wednesday, represent the first proof of concept for President Donald Trump’s atypical protectionist negotiating tactics.

The renegotiated deal addresses two of Trump’s most prominent trade complaints: the auto trade deficit between the U.S. and Korea, which has only increased since 2012 when KORUS went into effect; and the steel trade deficit.

The new deal includes a provision doubling to 50,000 the number of cars each American manufacturer can ship to South Korea without being subject to the country’s stringent safety regulations. It also reduces the amount of steel South Korea can export to the U.S. by roughly one third.

“While some of these may seem small individually, altogether these create a suite of outcomes that make it a lot easier for our auto companies to compete on a level playing field there in South Korea,” a senior administration official told Politico.

South Korea has also agreed to take steps to reduce regulatory barriers to American auto imports, in a further effort to balance the auto trade relationship. Last year the U.S. imported $23.9 billion in autos and auto parts from South Korea while sending back just $2.5 billion. The deal also extends a tariff on South Korean light trucks exported to the U.S., which was set to expire in 2021 but will now last through 2041.

The U.S. and South Korea are also reportedly finalizing a currency manipulation agreement, which will prevent either country from devaluing its currency to curry a trade advantage. South Korea is not listed as a currency manipulator by the Treasury department but has been placed on a “monitoring list” for questionable trade practices.

The success of the trade deal may have depended, at least in part, on the shared desire of U.S. and South Korea officials to present a united front prior to upcoming talks with North Korean dictator Kim Jong-Un. Kim travelled to China this week in his first international trip since taking power to meet with Xi Jinping in preparation for the meeting.

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