The Center for Economic and Policy Research (CEPR), a U.S. progressive think tank, called the Korean government's pledge to invest $350 billion (about 488 trillion won) with the Donald Trump administration in exchange for lowering the tariff "an outrageously foolish decision."
Dean Baker, a senior economist at CEPR, strongly criticized the trade deal that Korea and Japan recently reached with the United States in a post on the research center's website on the 11th (local time). He wrote, "Although the nature of the investment pledge is still unclear, if it is even remotely like the way Trump describes it, Korea and Japan accepting the deal is so foolish it borders on blasphemy."
He said, "Instead of handing astronomical sums of money to the United States, Korea could more than sufficiently support the export corporations and workers who could be harmed by a tariff increase using only a portion of that money."
Earlier, Korea reached a tariff agreement with the United States at the end of Jul. The gist is that, in return for the United States lowering the reciprocal tariff rate imposed on Korean imports from 25% to 15%, Korea pledged to invest $350 billion in the United States. But since then, the two countries have continued to clash as the United States has effectively demanded "a blank check." The idea is to invest $350 billion wherever the United States wants, and after recouping the investment, the United States would take 90% of the investment revenue.
Baker used simple arithmetic to explain how unreasonable this transaction is. He estimated that if the tariff rate were to return to 25%, Korea's exports to the United States would fall by $12.5 billion (about 17 trillion won), equivalent to 0.7% of Korea's gross domestic product (GDP). He pointedly asked, "It is hard to understand why Korea would give Trump $350 billion to protect $12.5 billion in exports." He then argued, "Even spending just one-twentieth of the amount Trump demanded would leave Korea far better off after supporting the workers and corporations harmed by the export decline."
He also cited the fact that President Trump cannot be trusted as a main reason to oppose this transaction. Baker noted, "Trump does not think he has to honor agreements. He can change his tune at any time and demand more money," adding, "It is a hard-learned lesson for colleagues who have done business with him."
Baker also expressed skepticism toward the security argument that this is an unavoidable choice to gain military support to contain China. He said, "If Korean and Japanese leaders believe Trump will protect them from Chinese military actions, they are crazy," and asked, "Is there something you don't understand about 'America First'?" He predicted that while European countries, if united, have time to build the military power to deter Russia, Korea and Japan are unlikely to gain military superiority over China and will ultimately have to find a compromise with China.
Baker concluded, "Ultimately, the question facing Korean and Japanese leaders is whether they will hand over hundreds of billions of dollars to Donald Trump and get nothing in return," adding, "They may think this makes sense, but it is hard to understand how."