US-Korea Economic Relationship
Background Information
Dr. Balit-Moussalli
Turning Points in US-Korea Economic and trade relationships
After South Korea’s 1997 financial crisis (spurred in part by the bankruptcy of some major industries and the repayments required on short-term foreign debt), investors lost confidence in the economy, leading to a major capital outflow. The Korean currency, the won, lost half its value in the space of a few days, falling from 900 to 1900 won to the dollar. The Korean government’s foreign currency reserves dropped to $4 billion, which was not enough to pull the value of the currency up. Seoul asked the IMF for economic assistance. The IMF agreed to a $58 billion support package, and in return, Seoul agreed to tighten its fiscal and monetary policies and engage in market-oriented reforms. South Korea also agreed to open its economy further to foreign goods and investors.
Latest Developments regarding the Free Trade Agreement undergoing negotiations:
South Korea is the seventh largest U.S. trade partner. But this trade relationship is somewhat unequal, with slightly more Korean imports than US exports.
According to Tami Overby, Vice President of Asia in the US Chamber of Commerce, the Korea-U.S. Free Trade Agreement would change the equation. While currently, the average tariff in Korea is about 11.2 percent (restricting US imports), the average U.S. tariff is about 3.3 percent (restricting Korean imports). The Free Trade Agreement will lead to greater benefits to the US, by reducing 95 percent of those tariffs.
In his State of the Union Address, President Obama stressed the importance of exports to the continued viability of the U.S. pork industry, and urged Congress to approve "as soon as possible" the U.S.-South Korea Free Trade Agreement. He emphasized that the agreement will support at least 70,000 American Jobs, and that it has unprecedented support from Business, labor, and both political parties. While the US economy grew by 3.2% (GDP growth in the last quarter of 2010, up from 2.6% in the third quarter), the national rate of unemployment is still high at 9.4% in December (down from 9.8% in the preceding month). The US government is focusing on exports as a way to create jobs and create economic growth.
According to Yonhap, the South Korean news agency, South Korea aims to attract more than US$15 billion in foreign direct investment (FDI) in 2011, by improving local business conditions in the green energy, services and industrial components sectors.