Was the KORUS FTA a Horrible Deal?

Hyeongwoo Kim (), Madeline H. Kim, Divya Sadana and Jie Zhang

No auwp2024-07, Auburn Economics Working Paper Series from Department of Economics, Auburn University

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.

Keywords: KORUS FTA; Trade Deficit; Difference-in-Differences; Causal Effect; Event Study (search for similar items in EconPapers)
JEL-codes: F13 F14 (search for similar items in EconPapers)
Date: 2024-12
New Economics Papers: this item is included in nep-int
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Working Paper: Was the KORUS FTA a Horrible Deal? (2022)
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