Ever since Donald Trump took office in 2017, economic efficiency has become subservient to geopolitics in Washington’s “America First” foreign policy, manifesting itself in the form of techno-nationalism and digital protectionism. Meanwhile, since 2020, the Biden administration has tried to cope with the COVID-19 crisis and the ensuing global supply chain disruptions through the import substitution of high-tech products, such as semiconductors, telecommunications equipment, rare earth materials, batteries, and medicine. Making things worse, the 2022 Russo-Ukrainian war has even securitized food and energy, inflaming the decoupling between the United States and China.

The Biden administration’s economic security strategy has three notable characteristics. First, to construct its economic security policies, the United States has been utilizing technologies that they have a distinct competitive edge over China. To block China from catching up, the U.S. has been tightening its grip on cutting-edge scientific technologies which could be critical in reshaping the structure of their strategic competition. The State Department, the Treasury Department, the Commerce Department, the Defense Department, and the Energy Department have adopted various sanctions on the semiconductor, 5G network, artificial intelligence (AI), electric vehicles (EV), and battery industry, with these ranging from export controls, import restrictions, bans on investment, and the suspension of human exchanges.

Second, since the U.S. cannot build its own domestic supply chain on short notice, the Biden administration has pushed for reshoring to encourage domestic firms to return, as well as expanding ally-shoring or friend-shoring with allies, partners, and like-minded countries. As of now, the U.S. is in negotiations with the Trade and Technology (TTC) with Europe, the Indo-Pacific Economic Framework (IPEF) with Asia, and the American Partnership for Economic Prosperity (APEP) with Latin America.

Third, the U.S. is taking a normative approach to cutting-edge scientific technologies that relate to its economic security. By projecting values of freedom, democracy, and trust to critical technologies, the U.S. addresses the growing threats posed by illiberalism and authoritarianism in the digital economy and cyberspace arenas. If these scientific and technological norms successfully develop, the digital economy and cyberspace could bifurcate into a U.S.-led democratic bloc and an authoritarian bloc led by China and Russia.

The Biden Administration’s economic security strategies are taking a significant toll on South Korean-U.S. relations. Ever since Trump’s trade war, the ROK’s economic diplomacy has been leaning further towards the U.S., its military ally, rather than its largest trading partner, China. The tightening in this relationship has been forged by several factors. First, Korea has developed its military alliance with the U.S. over the past few decades. Second, Korea and the U.S. share the core tenants and norms of democracy and the free market economy. Finally, negative public perceptions towards China surged following its sanctions in response to the THAAD deployment in 2017. For these reasons, despite China’s retaliations, South Korea joined the IPEF and the Chip 4 alliance as a founding member.

This does not mean that Korean support for the U.S. is unconditional. For South Korea’s semiconductor, battery, and EV industries, the U.S.’ “CHIPS and Science Act” and the “Inflation Reduction Act” poses both a challenge as well as an opportunity. South Korean companies can be beneficiaries of these bills in the long run, as these bills can thwart Chinese efforts to catch up to them. Yet, in the short run, Korean firms are likely to lose their share and returns in both the U.S. and China. If Korean businesses have to scale back or withdraw from China, which has surfaced as the world’s largest consumer market, their sales will plummet unless an alternative market can emerge. The fact that Korean companies cannot reduce their dependence to the Chinese market immediately to the level that the U.S. government desires also means that these companies will not be eligible for U.S. government subsidies.

The problems facing Korean companies in the United States vary by industry. Korea and the United States have fundamental disagreements about the Chip 4 alliance, which aims to reorganize the semiconductor supply chain. From the U.S.’ perspective, it needs to attract foreign companies to its own shores to increase domestic semiconductor production. As a part of the ally-shoring and friend-shoring, Samsung Electronics is building a foundry plant in Texas, capable of mass-producing state-of-the art semiconductors. Conversely for Korea, brushing away semiconductor productions in China, its largest export market, proves difficult to manage. Yet with U.S. sanctions imposed against China, Korean companies are unable to replace existing equipment freely, let alone expanded Chinese production facilities. While the U.S. has given a 1-year grace period for Samsung Electronics and SK Hynix, they may have to withdraw from China if such sanctions are prolonged. With recent plunges in demand and prices of its flagship memory semiconductors, the two companies would be unable to endure the worsened profitability made by abandoning the Chinese market.

The fissures between the U.S. and South Korea can also be observed in the EV battery industry. South Korean battery companies, LG Energy Solutions, Samsung SDI, and SK On, are cooperating with the three major U.S. automakers (GM, Ford, and Stellantis) to build battery plants across several U.S. states. Hyundai Motor and Kia Motors have also started constructing EV production plants in Georgia. Yet despite these massive investments, the two automakers were denied IRA tax breaks, as these subsidies are given only if a certain percentage of battery components are either mined or processed in the U.S. or USMCA member countries, or if they are recycled within North America. Currently, Korean electric vehicle battery suppliers rely heavily on Chinese materials, with over 72.5% of cathodes, 54.5% of battery separator films, and 90% of battery precursor materials supplied from China. If this problem is not rectified, Korean battery and EV companies operating in the U.S. will soon see a massive decrease in sales and market share.

It is noteworthy that U.S. sanctions against China could be discriminately applied for American and Korean firms. While leading U.S. companies like Apple and Tesla have expanded and maintained their business practices, South Korea’s Samsung Electronics and SK Hynix are pressured into leaving the Chinese market. If this tension is left unresolved, Korean support for the IPEF and the Chip 4 alliance will likely deteriorate. To prevent this, the U.S. should urgently provide Korean companies with adequate and sufficient compensation for their investments in the U.S.

Finally, the economic conflict between the ROK and the U.S. must not be extended to ROK-U.S. military alliance. Recently, the DPRK has been continuing its missile tests, which makes bilateral military security cooperation more important than ever for extended deterrence. Therefore, the ROK government should seek alternatives to expand the common denominator between the ROK and the U.S. rather than pressuring the U.S. government to yield so that such differing views regarding economic security do not negatively affect other aspects of bilateral relations. This is the only way that will make it possible to minimize the possibility of North Korea, as well as China, taking advantage of any deterioration in the ROK-U.S.conflict.■

■ Wang Hwi LEE is a professor of political science and dean of the Division of International Studies at Ajou University, Suwon, South Korea, where he has taught international political economy since 2006. Currently he consults the Ministry of Foreign Affairs, Ministry of Industry, Commerce and Energy, and Ministry of Science and ICT on economic security issues. His research interests have been focused on issues of the political economy of East Asia and the US-China strategic competition. He is the author of “The Politics of Economic Reform in South Korea: Crony Capitalism after Ten Years”, “Pulling South Korea away from China’s Orbit: The Strategic Implications of the Korea-US Free Trade Agreement”, “US-China Cooperation on Climate Change at COP26 - Policy Implications for Environment and Energy”, and “Crisis Management of the COVID-19 Pandemic in South Korea, Taiwan, Hong Kong, and Singapore.”

■ Typeset by Junghoo Park, Research Associate
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