Paper prepared for the Hoover Institution Conference "United
States-Korea Economic Relations", December 5-7, 1991. This
paper was begun while I was a visitor at the Korea
Development Institute(KDI), and I would like to thank KDI for
its more than generous hospitality during my visit.
U.S. and Korean trade patterns are largely complementary.
Korean exports to the U.S. an increasingly diverse basket of
manufactures, while the U.S. supplies Korea with primary
products and high tech goods. In such a situation, trade
expansion causes economic dislocation in the import-competing
sectors of each country. This is usually accompanied by
demands for protection and international political friction. This
pattern is likely to continue in U.S.-Korea trade for the
foreseeable future. Korean imports will exert a depressing effect
on incomes, output, and employment in a wide range of U.S.
manufacturing industries. Conversely, imports from the U.S. will
remain a threat to Korean agriculture and such emerging
industries as chemicals and aircraft. There is some evidence that
intra-industry trade, which could ease the adjustment, is
growing bur this should not be overstated.
The fundamental adjustment problem is exacerbated by
some special conditions in the U.S.-Korea case. Korea`s
development path has followed that of Japan, and Korea is
widely viewed as a "second Japan" in a pejorative sense. Korea
has consequently faced disproportionate trade barriers in U.S.
markets made sensitive by Japanese import penetration.
Trade frictions have at times been worsened by the
emergence of large trade imbalances. These imbalances were
mainly the result of U.S. macroeconomic policies. Although U.S,
authorities were correct in principle (though not in specifics) in
pushing for exchange rate policy reform in Korea, the main
responsibility for the bilateral imbalances of the late 1980s lies
with U.S. macropolicy.
In light of the fundamental difficulty of adjustment,
differences in trade policy institutions and practices, and the
periodic emergence of macro imbalance, the vitality of the
GATT system is crucial to future of U.S._Korea trade. A
successful Uruguay Round would provide a anchor for trade
policy and help diffuse bilateral tensions. Even a successful UR
would not be able to further the deeper integration or
harmonization of the two economies however, and bilateral or
multilateral SII-type negotiations involving Korea and the U.S.
An unsuccessful UR would increase momentum toward
regional trade blocs, however. Two bloc already exist; it is
probably not in anyone`s interest for a bloc to form in East
Asia. Japan is the key. It is likely that if the UR fails, Japan
will try to turn APEC into a free trade area. This would
effectively create a two bloc world: the EC or European
Economic Space, the trans-Pacific APEC-NAFTA bloc, and a
periphery of largely poor, unaffiliated countries. This would be a
decidedly second best result from a U.S., Korean, or global