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Was the KORUS FTA a Horrible Deal?

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  • Hyeongwoo Kim
  • Madeline H. Kim
  • Divya Sadana
  • Jie Zhang

Abstract

Donald Trump claimed that the Korea-U.S. Free Trade Agreement (KORUS FTA) was a horrible deal, pointing to a significant increase in the U.S. trade deficit with Korea since the agreement went into effect in March 2012. However, during the same period, the U.S. trade balance with many other major trading partners also deteriorated, even though none of them had an FTA with the U.S. This raises questions about whether the KORUS FTA is responsible for the worsened trade imbalance, casting doubt on Trump’s claim. We explore this issue by analyzing the causal effects of the KORUS FTA on the trade balance between the U.S. and Korea using a difference-in-differences approach, along with an event study to asset the model’s validity. Our empirical findings strongly support Trump's claim, while accounting for business cycle fluctuations over time.

Suggested Citation

  • Hyeongwoo Kim & Madeline H. Kim & Divya Sadana & Jie Zhang, 2024. "Was the KORUS FTA a Horrible Deal?," Auburn Economics Working Paper Series auwp2024-07, Department of Economics, Auburn University.
    • Handle: RePEc:abn:wpaper:auwp2024-07
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    File URL: https://cla.auburn.edu/econwp/Archives/2024/2024-07.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    KORUS FTA; Trade Deficit; Difference-in-Differences; Causal Effect; Event Study;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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    This paper has been announced in the following NEP Reports:

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