What is the Effect of the Korea-US Free Trade Agreement on Global Value Chains?
This paper finds that the Korea-US Free Trade Agreement (FTA) increased US auto imports from Korea on average by $4.8 billion per year and decreased US agriculture exports to Korea by $0.7 billion per year using synthetic controls to estimate the treatment effect. However, when evaluating the treatment effect on the share of trade that is part of a global value chain (GVC), I find that for US auto imports from Korea, the FTA increased the share of both GVC and non-GVC trade by 0.3 percentage points. For US agriculture exports to Korea, it decreased the share of GVC trade by 3.3 percentage points and increased the share of non-GVC trade by 2.2 percentage points. Interestingly for both sectors, after the FTA the trend of the share of GVC trade in exports changed from an upward trend to a downward trend suggesting that the FTA changed the nature of the trade to more non-GVC intensive and less GVC intensive. These findings suggest that evaluating the effects of an FTA on only exports and imports completely misses the effects FTAs have on trade that is involved in global value chains.