Trump threatened to kill the South Korea trade deal, but now the US has changed its tone

Key Points
  • President Trump had threatened to terminate the free trade agreement with South Korea, calling it a "horrible deal."
  • The U.S. business community as well as members of Congress quickly expressed support for the deal, known as Korus.

President Donald Trump's threats to terminate the U.S. trade agreement with South Korea ended up spurring support for the deal — and now both parties are striking a conciliatory tone.

U.S. Trade Representative Robert Lighthizer said Wednesday he looked forward to talks on resolving implementation issues and potential amendments, which was a far cry from the chances of canceling the entire agreement.

That more conciliatory tone was a marked change from a late August report in The Wall Street Journal, just before a long Labor Day holiday weekend in the U.S., that Trump could terminate the deal soon.

Trump had long voiced opposition to the pact.

In an April interview with The Washington Post, he also threatened to terminate the deal, calling the U.S.-Korea Free Trade Agreement, known as Korus, a "horrible deal" that has "destroyed" his country.

The Trump administration's backtracking this week was all the more remarkable because of the timeline, one analyst noted.

"When the Korus came up, right at a holiday weekend, the business community did a remarkable job, in my view, of mobilizing very quickly and effectively to say, 'This is not in our interests, it's not in U.S. interests,'" said Deborah Elms, executive director of the Asian Trade Centre.

Indeed, on Sept. 5, the day after Labor Day, the U.S. Chamber of Commerce made its opposition to the Trump administration's position clear.

"It's difficult to imagine a move that would bring more self-harm to our economy and national security, with no benefit in return, than withdrawing from Korus. We urge the administration not to make this rash and irresponsible move," President and CEO Thomas Donohue said in a statement.

US-South Korea trade pact talks should focus on certainty
US-South Korea trade pact talks should focus on certainty

That same day, Sen. Joni Ernst, a Republican from agriculture-dependent Iowa who had been considered as a potential running mate for Trump's campaign, sent a letter to the White House expressing support for Korus. She noted that South Korea was the fifth-largest market for U.S. agricultural exports in 2016.

Others pointed to another reason scrapping the deal met with resistance: the escalation in geopolitical tensions with North Korea, which has stepped up its nuclear and missile tests this year.

"Even if you don't like this trade agreement, this is not the right time to rock the foundations of our partnership with Korea. Korea is facing an existential threat from North Korea," said Miriam Sapiro, the deputy U.S. trade representative during the Obama administration who also served in the Reagan, Bush and Clinton administrations.

"We should instead be trying to shore up our relationship in a geostrategic as well as an economic sense," Sapiro, who is currently the head of public relations firm Finsbury's Washington, D.C., office, told CNBC's "Squawk Box" on Thursday.

President Donald Trump makes a statement on the mass shooting in Las Vegas in front of a portrait of President George Washington in the Diplomatic Room at the White House in Washington, October 2, 2017.
Kevin Lamarque | Reuters

Sapiro also pointed to another reason U.S. business rallied around the deal: the need for certainty.

"Having a trade agreement in place gives them certainty. They know what the tariff rates are going to be. If they are a service provider, they know what kinds of services they can offer without restrictions," she said. "It's the uncertainty of the threat of withdrawal that has people quite concerned."

Asian Trade Centre's Elms noted similar concerns. If it weren't for the Trump administration's aggressive stance on Korus, more companies might have come forward with complaints about the pact, she said.

"The fear is that it would topple the deal, so companies were more muted in their complaints," she said.

But even as talks between South Korea and the U.S. appear set to proceed on a more even keel, the initial tone may overshadow their progress.

"When you start discussions with a threat, then the tone of that dialogue is going to be different than if you had started that discussion with all the goodwill in the world of two longstanding partners sitting down together," Elms said. "Once you have made the threat to cancel agreement, it's a bit hard to take that back."