"67th Anniversary of Mutual Defense Treaty... Economic Value of Hanmi Alliance Up to 3042 Trillion Won"

Hankyungyeon Analyzes 'Economic Value Estimation and Implications of the Korea-US Alliance'

Korea-US Alliance Cartoon [Provided by Korea Economic Research Institute]

[Asia Economy Reporter Kim Heung-soon] As the Mutual Defense Treaty between Korea and the United States, which came into effect on November 18, 1954, marks its 67th anniversary, claims have emerged that the economic effect of the Korea-US alliance exceeds 3,000 trillion won.

The Korea Economic Research Institute (KERI), under the Federation of Korean Industries, announced on the 17th that, on the occasion of the 67th anniversary of the Korea-US Mutual Defense Treaty, the estimated economic value of the Korea-US alliance over 21 years since 2000 amounts to between 928.2 trillion and 3,041.6 trillion won for Korea.

To estimate the economic value of the Korea-US alliance, KERI measured the additional defense expenditure that could arise if the alliance between the two countries were to collapse, such as the withdrawal of US Forces Korea, causing a gap in Korea’s defense capabilities, and the impact on gross domestic product (GDP) due to a downgrade in the national credit rating, under three different scenarios.

The Korean government’s scenarios to fill the defense gap during the analysis period from 2000 to 2020 were set as follows: ▲ a one-time cost of 36 trillion won to replace US Forces Korea plus an additional annual expenditure of 3.3 trillion won ▲ a 50% increase in defense spending ▲ a 100% increase in defense spending.

Regarding changes in the national credit rating, KERI assumed that the larger the additional defense spending due to the absence of US Forces Korea, the smaller the downgrade in the national credit rating. In the case of a 100% increase in defense spending, the national credit rating would drop by one level, while in the other cases, where defense spending is insufficient, the geopolitical risk mitigation would be relatively inadequate, resulting in a two-level downgrade in the national credit rating.

Based on these assumptions, the estimated economic value of the Korea-US alliance showed that the total GDP loss due to increased defense spending during the analysis period from 2000 to 2020 ranged from a minimum of 369.9 trillion won to a maximum of 2,762.4 trillion won, depending on the scenario. The 100% increase in defense spending scenario resulted in the largest loss of 2,762.4 trillion won. The total GDP loss due to a downgrade in the national credit rating was 558.4 trillion won for a two-level drop and 279.2 trillion won for a one-level drop, respectively.

KERI argued that the value of the Korea-US alliance is not limited to the cost of replacing the US troops stationed in Korea or the value of reinforcement forces in emergencies. It added, "The United States has been Korea’s historic and military blood ally for over 60 years," and emphasized, "Maintaining a strong alliance with the United States is essential for the stability and continuous prosperity of our economy."

Choo Kwang-ho, Director of Economic Policy at KERI, stated, "One of the major cornerstones that allowed our country to achieve rapid growth and economic prosperity under a free market economy, rising from the ruins of war, was the strong Korea-US alliance," and stressed, "We must further strengthen the Korea-US alliance to maintain the foundation for continuous economic prosperity."

This content was produced with the assistance of AI translation services.