U.S. and South Korean Economic Relations

Introduction and Background

The Second World War saw the collapse of the state of Korea that led to the division of the country in Northern and southern Korea. This decision was reached in 1945 right at the end of the war and the start of the cold war. At this time the international community had to intervene to rescue the country. The Northern Korea had threatened attack to the southern part and since it had more war equipment, it was clear that they could fight the southern part.

The division and the deployment of the foreign troop led to the control of the southern part by the United States and the northern part by the Soviet Union. There were United States military deployed in the southern part in an effort to ensure that there was peace in the region. The troops were mandated to keep peace especially from the attack of the northern part. The relationship was strengthened by the 1950 attack of South Korea by northern Korea to unify the island starting the Korean War. The war lasted until 1953 with the defeat of South Korea¹. It saw the intervention of the United Nations to return all the key southern cities that had been occupied by North Korea.

In the effort to guarantee South Korea of security against the North Korea, the United States and South Korea signed the Mutual Defense Treaty in 1953. This corporation was the one that brought the two countries to closer relationship that have an effect on the economies of both nations. This paper will analyze the effect of the cooperation to the two countries; it will also assess the current development of the corporation.

Brief Overview of How the U.S. Helped Shape Korea’s Economy

Immediately after the Korean War, South Korea’s economy was at a devastating rate. The country depended on importation of goods to cater for her needs. Many of the world countries were still shy to trade with the country. With the United Nation troops guaranteeing that peace were available, international bodies like the international monetary fund gained confidence with the country and started to extend aid and grants to the country. The United States at the time was the largest aid provider to the country. From 1953 to 1974, the grant had reached US$4 billion. Alongside the financial aid, the United States stated building projects that were fully financed by the state².

The lending rate to the country was reduced and the country was able to make massive expansion at the time. In this period the goods that the country could produce were mostly low quality manufactured goods and there was the need for policies to implement that encouraged industries developments. To facilitate the development of export trade, the United States opened its markets to the Koreans. During this time, it became the largest trader with the country.

This strengthened the economy and there was the attraction of other countries. They included Japan and China. Alongside them gaining interest in the country as trading partners, the countries also advanced grants to the country to facilitate its development. The country experienced increased foreign direct investments and in 1980, the country experienced the first balance of trade surplus. This was as a result of increased demand of Korea manufactured goods in the world markets and the reduction in the oil prices. There was the boost of the monies that came from invisible trade that is the money sent back home by Koreans working abroad especially in United States and Japan.

The tourism industry was also growing fast and added to the foreign exchange docket. This success came with draw backs in that the developed countries and the United States started to put trade boundaries in the form of tariffs and quotas to the country. Trade with the United States reduced but it was until the decision that Seoul made to value the currency of the country with the United States Dollar that the trend reversed³. The cost of imports from Korea reduced in the United States markets. South Korea is benefiting in the bilateral trade with the United States, economically, than the opposite. Until 2005, United States was the largest export market of South Korea exports.

Japan overtook it in the year 2006. In 2007 U.S. was the second largest export market of South Koreans products, and the third-largest source of imports. It was in the year 20003 that the United States was moved to the second place in the ranking of South Korea’s partners in trade⁴. From the above analysis of the numerous interventions that United States had on Southern Korea, we can find that the United States played a major part in the development of South Korea.

South Korean Public Sentiment in Regards to the Degree of U.S. Influence in Economic Affairs

After the peace military assistance of the United States, the country sort to in a way to dictate functioning of activities in the country. The government could collaborate to a certain level and refuse to be dictated upon by the United States. As a result the public confidence with the United States was reduced. They started to see them as colonizers in their own country. As the country positioned itself in the world market more and more resistance against the United States was seen in the year 1980 when South Korea corrected its long lasted foreign deficit. The American decided to put trade barriers that discouraged trade between the two countries, a move that was questioned by many.

It was seen as if the United States had an intention of reversing the growing trend of South Korea, the locals were not happy, and their focus was to the southern markets. China and Japan seized the opportunity. In the 1997 Korea Economic crisis the United States was not willing to assist and it took the intervention of the International monetary fund. Again in 2001, when South Korea was not in good economic states the U.S. was not in the forefront to assist. In all this times the public could learn and develop attitude⁵. The situation was seen well on year 2003, when Seoul refused to admit any meat exports from United States. This was as a result of the probable cow madness.

The country was the largest importer of Americans beef products by then. On Monday, April 2, 2007, when an agreement was being signed by the United States and the south Korean government to establish a bilateral agreement, KORUS FTA (to be discussed later) there was huge demonstrations in South Korea to compel the government not to sign the agreement. The public saw as if the agreement would lead to a control of the United States over the South Koreas.

Today, it is not clear if the Korea’s government is going to fully implement the agreement. The trade in the country has shifted to the east and this saw the Japanese overtake the United States as the largest trader with South Korea in the year 2005. This is the case so far, even after the initial stages of the KORUS FTA implementation. The attitude is changing to the worst⁶.

How Economic Dynamics Have Changed From The Post 1950’s To The Present Using Discussion Of The Asian Financial Crisis (Known In Korea As The IMF Crisis), And The More Recent Debates On The KORUS FTA

In 1997, the republic of South Korea was experiencing a financial crisis. This led to the collapse of major industries and a rapid increase in the repayment rate on short term foreign debt. As it was expected the foreign investors lost confidence in the future of the country’s economy and opted to flee to safer area. The Korean currency depreciated against the dollar by almost half. Measures had to be put in place to reverse the trend. As a result its currency reserves dropped significantly to $4billions. By the end of the year the country had experienced such a drop in the economic situation and resulted in seeking for assistance from the International Monetary Fund (I. M. F.).

An agreement was reached on December 4, 1997, and a support of $58 billion was granted. On its part the Seoul agreed to tighten the country’s monetary and financial policies that would favor the trade among other countries. There was adjustment that the country agreed to make in the effort to encourage local and foreign investors once again. This was among others the reopening of its economy and offering incentives to the foreign investors. Economic recession started right away. The country started to repay the deficits that it had incurred during that time of crisis and was able to gain confidence from the local and foreign investors. There was a rise in the foreign direct investors.

More and more laws were relaxed to encourage and support trade with the world. In the year 2001, an almost similar situation of 1997 started all over again and the trade between the country and the United States was the most affected. The two countries put tariff barriers between themselves that saw each go its way in the search for a better trading partner. Their economies were not much affected; the United States became the world largest trader and South Korea became the eleventh. After a realization of the trade potential that the two countries had, negotiations were started to form a bilateral agreement that would facilitate trade between them. The agreement would be called Korea-United States Free trade Agreement (KORUS FTA)⁷.

The United States under President George Bush on Monday, April 2, 2007 struck an agreement that is believed to be the largest bilateral agreement; the agreement was set out to enhance the trade between the two countries⁸. It was in the effort by the two countries to reduce the tariff paid on over 90% of good that are traded between the two countries. The components of the deal were aimed at;

1. The United States dropped its demand that South Korean government stop protecting its large scale rice farmers, these farmers were thought to have been politically protected. On its part the Seoul agreed to import American beef, into their territory which were halted in 2003 ago over fears of mad cow disease. However, this was after the World Organization for Animal Health. This declaration was to take place in May 2007⁹.
2. South Korea also agreed in the next fifteen years to remove the 40 percent tariff on U.S. beef. In the effort to facilitate the exportation of vehicles into the country by the Americans, it agreed to an 8 percent import duty on cars. It also agreed to revise the domestic vehicle taxation system. The previous system was challenged to have discouraged American cars with bigger engines. The United States on its part agreed to eliminate the 2.5 percent tariff on South Korean cars with engines running on power of less than of 3,000 cc; the removal of tariff of 25 percent, on imported trucks over 10 years; and remove duty, on 60% of South Korean textiles.

The reaching of the agreement would be of benefit to the two countries. The United States got the chance to get in the market of the fast growing Asian market and South Korea got a better trading platform with the world largest trader. President George Bush in the launch of the agreement said that the trade agreement will strengthen the U.S.-South Korean economic ties. It was believed that the trade agreement would approximately add the trade between the two countries to $20 billion.

Potential gains to the Usha Haley, director of the Global Business Center at the University of New Haven, estimated that the agreement benefit to the U.S. economy would range from $17 billion to $43 billion. In its part the South Korean exports to the United States were expected to rise immediately with an estimated 12 percent in the first year of trade. This is estimated to be an upward shift of trade by $5.4 billion.

The full stages to effect the agreement that is referred to as KORUS FTA is still getting support from the countries head of states. In their meeting at the G20 summit in 2009, President Obama and South Korean President Lee Myung-bak promised to support the KORUS FTA bilateral dealing that they expressed consents that it has facilitated the trade between them so far¹⁰.

Conclusion

The rise of South Korea to its position in the world market has taken a long time characterized with numerous positive and negative phases. Today it is one of the leading trading partners but to reach this point there has been the intervention of numerous countries and international organizations. One of the major contributors is the United States of America despite the mixed attitude between the two countries. From the above early intervention of the United States, it is clear that it was the one that realized the potential of South Korea and the other countries follow suit. Presently, as South Korea boosts as the eleventh largest trading country in the world, credit should be advanced to the efforts of United States.

Bibliography

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Breen, Michael. The Koreans: Who They Are, What They Want, Where Their Future Lies. St. Martin’s Griffin, 2004.

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Footnotes

1. Kang, Wha In. “The Media-Government Relations: Comparative Analysis of Newspaper Reporting of Foreign Policy between the United States and South Korea.” Conference Papers — International Communication Association 1. New York: Communication & Mass Media Complete.
2. Selden, Mark. War and State Terrorism: The United States, Japan and the Asia-Pacific in the Long Twentieth Century. New York: Rowman & Littlefield. p.110. 2003.
3. Lee, Byeong-Cheon. Developmental dictatorship and the Park Chung-hee era: the shaping of modernity in the Republic of Korea. Seoul: Homa & Sekey Books. pp. 234–235. 2006.
4. Steinberg, David. Korean attitudes toward the United States: changing dynamics. New York: M.E. Sharpe. p. 119. 2005.
5. Boose, Donald. Portentous Sideshow: The Korean Occupation Decision. Volume 5, Number 4. 1995–96. Parameters. US Army War College Quarterly. pp. 112–129. OCLC 227845188.
6. Hart, Dennis. From Tradition to Consumption: Constructing a Capitalist Culture in South Korea. Seoul: Hollym, 2003.
7. Devine, Robert.; Breen, T. H.; Frederickson, George.; Williams, Hal; Gross, Adriela.; Brands, H.W. America Past and Present 8th Ed. Volume II: Since 1865. Pearson Longman. pp. 819–821. 2007.
8. Nahm, Andrew. Korea: A history of the Korean people (2nd ed.). Seoul: Hollym, 1996.
9. Yang, Sung Chul. The North and South Korean political systems: A comparative analysis (rev. ed.). Seoul: Hollym, 1999.
10. Breen, Michael. The Koreans: Who They Are, What They Want, Where Their Future Lies. St. Martin’s Griffin, 2004.