[US-China Economic War Series] ⑨ The Dual Challenge of Geopolitics and Geoeconomics and the Continuity and Change in South Korea's Economic Security Strategy

I. Introduction

Traditional economic security refers to protecting one's economy and security from the aggression of other states, mobilizing economic means to achieve foreign policy and security objectives, and strengthening the economic foundation of military power necessary to respond to geopolitical challenges (Samuels 1996; Blackwill and Jennifer 2016). However, as geopolitical and geoeconomic challenges have unfolded simultaneously amidst US-China strategic competition and the global spread of COVID-19, countries worldwide have begun to define economic security more actively and broadly. A representative example is the United States defining China's economic rise as an economic invasion and asserting that economic security is national security (Navarro 2018). Major powers have shifted from defensive and reactive economic security strategies focused on protection and safety to strategic approaches that utilize core technologies and industrial competitiveness as means to secure strategic advantage. In this process, major powers are seeking a transition to proactive and preemptive economic security strategies focused on increasing their national interests.

The shift in economic security strategy is closely related to the weaponization of interdependence, which has increased due to globalization, and the weakening of the boundary between economy and security due to the development of dual-use technologies. Contrary to the liberal expectation that increased interdependence between nations would foster peace, there is a growing trend of great powers using increased interdependence as a means to pressure 상대국. The proliferation of dual-use technologies has not only accelerated competition for securing future competitiveness but has also emerged as a factor increasing threats to national security, leading to the rapid securitization of advanced technologies. South Korea has also actively defined its economic security strategy and continuously expanded its scope to reflect these trend changes. Simultaneously, South Korea has attempted to differentiate its economic security strategy from those of other countries, driven by direct experiences of economic coercion from China and Japan, the increasing practical need to mitigate the structural vulnerabilities of advanced industrial supply chains, and the growing need to manage geopolitical risks such as US-China strategic competition.

This article focuses on the fact that two characteristics—long-term continuity and change reflecting structural shifts in the domestic and external environment—are simultaneously evident in South Korea's economic security strategy. South Korea's economic security strategy has transformed through several stages from the early 1960s to the present. During this process, characteristics that permeate South Korea's economic security strategy have been formed, while changes in the economic security strategy reflecting shifts in the domestic and external environment have also occurred. The continuity of South Korea's economic security strategy lies in the combination of geopolitical and geoeconomic responses, the absence of economic coercion as a tool, and its mercantilist nature and industrial policy-based strategy.[1]Meanwhile, a differentiated change is observed in South Korea's economic security strategy in that advanced technologies are closely integrated. Specifically, this includes mitigating the vulnerabilities of advanced industrial supply chains, strengthening advanced technological capabilities, and combining industrial policy with advanced technology strategies.

II. Types of Economic Security Strategies

Economic security strategies can be categorized into four types based on two criteria: the nature of response strategies (geoeconomic vs. geopolitical) and the priority of response means (external vs. domestic policy). First, the type of economic security strategy is determined by whether priority is given to geoeconomic or geopolitical responses when facing external challenges. There are two types in this category. Some countries establish geoeconomic responses as the foundation of their economic security strategy when confronted with external challenges such as intensifying economic competition and increasing security threats. These countries set securing an advantage in economic or industrial competition with other nations as a core task of economic security and tend to resolve geopolitical challenges through geoeconomic responses, such as strengthening industrial competitiveness (Samuels 1996).

Conversely, there are types that prioritize geopolitical responses to changes in the external environment. The United States and the Soviet Union during the Cold War are representative examples. These types of countries prioritize pursuing (offensive) geopolitical objectives (Andrews 2006; Baldwin 1985; Cohen 2018; Drezner 1999, 2015). While concerns about the economic and industrial catch-up of rival nations exist, the underlying perception is that threats to economic security can at any time transform into threats to national security. In this context, during the Cold War, the United States invested heavily in high-risk research and development and pursued the restructuring of its innovation ecosystem to secure an advantage over the Soviet Union.

Geopolitical responses are evident not only in the US-Soviet competition during the Cold War but also in the recent US-China strategic competition (Navarro 2018). When containing China is deemed beneficial for securing geopolitical advantage, there are instances where even a decline in economic efficiency is accepted. Facing China's technological rise in the 21st century, the United States is once again pursuing a strategy that links strengthening competitiveness in key advanced industries through upgrading its technological innovation system and enhancing domestic production capabilities. This is a result of the fundamental fear that China's technological and industrial catch-up will ultimately translate into a national security threat. However, unlike the Soviet Union during the Cold War, China is rapidly closing the advanced technology gap and dual-use technologies are rapidly expanding, leading to a strategy that pursues both the delay of China's innovation capacity development and the strengthening of its own capabilities. The 'innovation imperative'—the idea that the US cannot afford to allow China to catch up without linking the upgrade of its innovation ecosystem and the strengthening of industrial competitiveness—has become central to the US economic security strategy.

This phenomenon tends to spread not only among superpowers but also to major powers, as seen in economic sanctions against states that threaten the foundations of the world order. As exemplified by the Russia-Ukraine war, the United States and European countries actively employed external economic policies such as export controls, investment regulations, and financial sanctions against Russia, despite the possibility of disrupting Russian energy supplies. The EU, in particular, tends to avoid extreme pursuit of economic efficiency in managing risks arising from structural dependency on specific countries (European Commission 2023).

Second, in terms of response means, strategies are divided into those that prioritize external economic policies such as economic sanctions, export controls, and foreign aid, and those that focus on domestic-level responses such as industrial policy, technological innovation strategies, and institutional innovation. Economic security strategies centered on external economic policies are primarily the domain of great powers and thus have difficulty spreading to many countries. Furthermore, as great powers tend to prefer multilateral economic sanctions over unilateral ones, they may also mobilize middle or small powers into economic sanctions. While middle or small powers may also pursue economic security strategies with an external economic policy orientation, this is not the core of their economic security strategy, as it is done to avoid damaging their cooperative relationship with great powers. This is because great powers possess the ability to impose sanctions or provide incentives by leveraging asymmetric interdependence. During the Cold War, the United States prioritized economic security strategies that established domestic technological and institutional capabilities that were easier to implement, with the primary motive being to secure military superiority over the Soviet Union. However, this domestic dimension of US economic security strategy is essentially a geopolitical approach, as the dominant motive was to secure military superiority over the Soviet Union.

Conversely, there are countries that pursue economic security strategies centered on domestic industrial policy when faced with domestic and external challenges (Weiss and Thurbon 2021). These countries tend to define economic security in economic terms and recognize that strengthening domestic industrial competitiveness and institutional innovation are essential for responding to changes in the external environment. Furthermore, these countries expand the scope of industrial policy to include defense industries or industries directly or indirectly related to military buildup, thus prioritizing industrial policy-based responses even to geopolitical challenges. While they do not exclude geopolitical responses such as military buildup in the face of increasing security threats, industrial policy-based responses remain important in their economic security strategies by linking military buildup with the strengthening of defense industrial capabilities.

Changes in the external environment, such as disruptions to global supply chains due to increased geopolitical risks, the global spread of pandemics, climate change, and frequent natural disasters, and the instability of the world economic order, have spurred the return of the state and, furthermore, industrial policy (Wade 2012; Siripurapu and Berman 2023).[2]As external environmental uncertainty heightens, the role of the state is emphasized, and as competition for advanced industrial competitiveness intensifies, countries at the forefront of competition recognize maintaining their position as a paramount task. This is why focusing on strengthening industrial policy within economic security strategies, as seen in the cases of South Korea and Japan, is important (Carroll 2023; Lee Seung-joo 2023).

Japan is a prime example of a country that has pursued a geoeconomic approach. Since World War II, Japan has pursued a geoeconomic strategy focused on mobilizing resources to secure an advantage in economic competition. In this sense, Japan can be seen as an example of trading off geopolitical interests for economic development and security. Japan's geoeconomic approach is also evident in its reshoring policies. The Japanese government's various efforts in the late 2000s and early 2010s to encourage Japanese companies to return to Japan can be seen as a geoeconomic approach to manage the risks associated with investment and business in China and strengthen supply chain resilience. The reshoring policy interacted with the increasing need for "China Plus Alpha" for Japanese companies as China's attractiveness as an investment destination diminished (Katada et al. 2023).

The types introduced so far are on a continuum, so the boundaries are not always clear. There may also be types that lie on the boundary of the two criteria or share both characteristics. The reshoring policies competitively pursued by countries worldwide recently have multifaceted characteristics. Reshoring is a government policy to bring back domestic companies, especially manufacturing firms, that had moved overseas for production efficiency optimization (Bals et al. 2016). It is an economic security strategy based on geoeconomic considerations, as it aims to reduce dependence on other countries or competitors and enhance supply chain resilience. At the same time, when reshoring is pursued targeting specific countries, a combination of geoeconomics and geopolitics occurs. The US reshoring policy, which explicitly states the strategic goal of containing China and seeks to attract not only its own companies but also those of its allies and partners to the US, is a typical example of the combination of geoeconomics and geopolitics. The US reshoring policy is not only aimed at securing an advantage in the advanced technology competition with China but is also a security strategy that considers the trend of widespread proliferation of dual-use technologies.

Reshoring has the characteristics of an external economic policy in that it changes the production location of companies without necessarily implying a strategic intent to alter the behavior of the other country. At the same time, it also has the characteristics of a domestic policy that prioritizes job creation to respond to backlash against globalization. In that its purpose is to strengthen manufacturing capabilities in key industries by supporting the return of domestic companies, reshoring can be considered a typical industrial policy. On the other hand, as it does not exclude foreign companies if they align with the goal of strengthening domestic production capabilities, it also incorporates elements of external economic policy.

III. Continuity in South Korea's Economic Security Strategy

Although the means and methods of South Korea's economic security strategy have varied by period depending on the nature of the challenges faced and domestic response capabilities, characteristics such as mercantilist nature, industrial policy-based strategy, combination of geopolitical and geoeconomic responses, and reactive nature have persisted. First, export-oriented industrialization in the 1960s was a survival strategy that clearly demonstrated a mercantilist goal of catching up with developed countries as a latecomer, thus serving as the origin of South Korea's economic security strategy. Even in liberal economic security strategies such as trade liberalization or Free Trade Agreements (FTAs), mercantilist elements were structurally embedded.

Subsequently, South Korea pursued an economic security strategy that deepened and expanded industrial policies focused on protecting and nurturing its own industries while pursuing industrial structural advancement. Even in the early 21st century, an era of uncertainty marked by the simultaneous occurrence of various risks such as US-China strategic competition, pandemics, and climate change, South Korea's economic security strategy maintains its approach based on mercantilism and industrial policy. The continuity of mercantilism and industrial policy in South Korea's 21st-century economic security strategy is found in its establishment of advanced technological capabilities and competitiveness in advanced industries as effective means to respond to bilateral economic coercion and increased multilateral uncertainty.

Second, South Korea's attempt to combine geoeconomic and geopolitical responses is also a characteristic of its economic security strategy. While it is true that mercantilism and industrial policy are prioritized in South Korea's economic security strategy, it is not that there have been no geopolitical response strategies focused on responding to security threats and changes in the strategic environment. Rather, South Korea has pursued a strategy of closely integrating geopolitical responses with geoeconomic responses, rather than prioritizing geopolitical responses.

Third, the reactive nature is a characteristic of the economic security strategy that formed relatively late. South Korea faced pressure for trade liberalization and market opening from the United States and Western developed countries from the mid-1980s onwards. At that time, South Korea pursued a trade policy with a reactive character, adjusting the scope and pace of trade liberalization in response to bilateral pressure from developed countries. In the 2000s, China emerged as a new party in trade disputes. When the South Korean government imposed a safeguard, raising the tariff rate on Chinese garlic by more than tenfold to protect its garlic farmers in June 2000, China responded by banning imports of South Korea's key export items, namely mobile phones and polyethylene. Facing the so-called 'garlic dispute,' South Korea focused on a reactive strategy to minimize damage from China's retaliatory measures. The reactive nature of the economic security strategy continued in the 2010s as well. In response to the Chinese government's economic coercion regarding the decision to deploy THAAD (Terminal High Altitude Area Defense) and the deterioration of South Korea-Japan relations, South Korea prioritized minimizing economic damage rather than responding with the same type of economic coercion.

1. Mercantilist Tradition and Industrial Policy-Based Economic Security Strategy: Origins and Continuity

1) Export-Oriented Industrialization Strategy in the 1960s

Traditionally, the economic security strategies of great powers tend to be pursued as part of foreign policy. These are divided into methods that provide incentives, such as aid and economic support, to other countries, and methods that impose punitive measures, such as economic sanctions or export controls. In contrast, external economic policy has been a relatively underdeveloped area in South Korea's economic security strategy. It is no exaggeration to say that South Korea has never had economic security strategies where providing incentives like aid and economic coercion like economic sanctions played a central role.[3]This characteristic has continued until recently. Despite facing economic coercion from China and Japan, South Korea has maintained a cautious stance in responding with counter-coercive measures.

Another characteristic that permeates South Korea's economic security strategy is its mercantilist nature. Despite undergoing several stages of change, mercantilist elements have always played a central role in South Korea's economic security strategy, and their status has not changed recently. The origin of mercantilism in South Korea's economic security strategy dates back to the 1960s. After liberation, South Korea relied on US aid and security umbrella until the early 1960s, but embarked on an industrialization strategy in the early 1960s (Yang Jae-jin 2012). The industrialization strategy, which began with export-oriented industrialization (EOI) in 1962, can be considered the origin of South Korea's economic security strategy. The geoeconomic response of completing industrialization through catch-up, set as the shortest path to national survival in the face of inter-state competition, was the origin of South Korea's economic security strategy. At that time, as a latecomer, catching up with leading countries was a key element of geoeconomic response that guaranteed national survival beyond industrialization strategy.

On the surface, these attempts pursued integration into the global economy through the promotion of export industries, revealing a liberal character (Ryu Sang-young 1996). However, in essence, they can be considered a mercantilist economic security strategy, as they were geoeconomic responses for national survival. Specifically, selective liberalization of imports, protection of key industries, and explicit pursuit of catching up with leading countries were undertaken, and this characteristic was even strengthened in the process of advancing industrial structure, making South Korea's mercantilist nature a pervasive characteristic of its economic security strategy.

The pursuit of leading countries, i.e., a mercantilist-based economic security strategy, did not end as a one-off strategy but continued after the 1970s. However, the mercantilist approach varied in form and method depending on the nature of the challenge. South Korea attempted to upgrade its industrial structure through heavy and chemical industry promotion from the late 1960s, and the mercantilist characteristics were further strengthened during this process. Heavy and chemical industry promotion was an industrialization strategy that sought to upgrade from labor-intensive industries to capital- or technology-intensive industries. During this period, the geoeconomic challenge of leading countries' containment and latecomers' catch-up was a key theme in South Korea's economic security strategy. In response to changes in the external environment, South Korea's chosen alternative was to upgrade its industrial structure to heavy and chemical industries. The mercantilist character was actually strengthened in the upgrade to heavy and chemical industries. Despite the significant challenge of industrial structure upgrading, South Korea chose a strategy of direct competition with leading countries in the final production of heavy and chemical industries, rather than forming cooperative relationships with leading countries by participating in the international division of labor.

2) FTA Strategy: Liberalization's Facade and Mercantilism's Substance

Having succeeded in catching up through industrial structure upgrading, South Korea sought another transition to a liberalization strategy from the 1980s onwards. This attempt manifested as trade liberalization externally and financial liberalization internally. However, this was a managed liberalization strategy and did not signify a break from mercantilism. This trend continued into the 1990s. The 1997 Asian financial crisis hastened the end of the catch-up development model that South Korea had pursued since the early 1960s. Starting with the consolidation of financial institutions, reforms in corporate governance, labor, and public enterprises proceeded simultaneously. This series of changes was expected to lead to a transition from a traditional strategy linking economy and security to a new strategy separating economy and security. However, this expectation did not materialize in two aspects. First, given that the changes in the 1990s had the character of 'forced liberalization' (Higgott 1998), they are difficult to consider fundamentally different from traditional economic security strategies. Second, although South Korea did implement institutional reforms with neoliberal characteristics for crisis management, it is somewhat unclear whether these attempts led to substantive changes. This is evidenced by the assessment that South Korea's structural reforms were merely 'cosmetic compliance' (Walter 2008)—a superficial change to receive bailout funds from the IMF.

The facade of liberalization and the substance of mercantilism are well illustrated in the FTAs that South Korea has pursued since the late 1990s. The decision by the Kim Dae-jung administration, launched amidst the high waves of the financial crisis, to pursue FTAs was understood as heralding the rapid demise of mercantilism in South Korea. Subsequently, the Roh Moo-hyun administration pursued an aggressive FTA strategy, advocating for an 'open trade nation' and pursuing FTAs with major developed economies such as the United States and the EU. During this period, South Korea's FTA strategy, while aiming for comprehensive trade liberalization, strongly embodied mercantilist tendencies in the following four aspects.

First, the Kim Dae-jung administration's pursuit of FTAs was driven by a strategic intention to gain first-mover advantages by participating in the FTA race before regional competitors. This was the result of strategic thinking that recognized FTAs as a means for trade liberalization and a source of new competitive advantage (Ravenhill 2010). Second, the Roh Moo-hyun administration's parallel pursuit of 'FTAs with major developed economies' and 'simultaneous FTAs' was also a result of focusing on the security effects of FTAs. The fact that South Korea sought to conclude FTAs with as many countries as possible, and with countries that hold significant weight in global trade, despite anticipating the emergence of FTA-affected groups domestically, was because it perceived FTAs as an expansion of 'economic territory.' Third, based on this strategy, South Korea aimed to become a 'global FTA hub,' intending to leverage its position within the FTA network as a strategic advantage (Lee Seung-joo 2010). Fourth, as clearly demonstrated by the case of the Korea-US FTA, South Korea perceived FTAs as a means to link economy and security. It expected that concluding FTAs would elevate the Korea-US relationship from a military alliance to a comprehensive alliance.

It is clear that South Korea pursued a differentiated economic security strategy after the 1980s by embracing liberalization. This period's liberalization strategy focused on discovering new ways and means to link economy and security, rather than separating them. It recognized the potential of FTAs as a nexus linking economy and security (Lee 2012). Although dependence on external economic policies such as FTAs increased, the mercantilist element of expanding 'economic territory' was strongly embedded within them (Lee Seung-wook 2021). The pursuit of FTAs as a means to expand economic territory beyond trade liberalization clearly demonstrates the mercantilist nature of South Korea's economic security strategy.

3) China's Rise: "Anmi-Gyeong-jung" and Mercantilist Approach

In the 2000s, South Korea's economic security strategy entered a new phase. China's economic rise became a structural factor driving this change. For South Korea, which was desperately seeking new engines for economic growth after the catch-up phase, still recovering from the aftermath of the foreign exchange crisis, China's economic rise presented an attractive alternative. As China emerged as the "world's factory" after joining the WTO in 2001, trade volume between South Korea and China rapidly increased. The 2008 global financial crisis further accelerated this trend. The economic turmoil in the United States and Western developed countries amplified the need for market expansion for South Korea, which is highly dependent on external trade. China, which emerged as South Korea's largest trading partner during this period, maintained this status until 2022. In this process, not only did the bilateral trade volume between South Korea and China rapidly increase, but a qualitative change occurred in forming value chains based on division of labor in key manufacturing sectors such as electronics and automobiles.

The relative decline of the United States after the global financial crisis, contrasted with China's economic rise, led to a fundamental increase in the complexity of South Korea's economic security strategy. When the US was both South Korea's largest trading partner economically and its ally security-wise, South Korea's economic security strategy was relatively clear and simple. Cooperation with the US in both economic and security aspects was the paramount task of South Korea's economic security strategy, so there was little practical need to pursue fundamental changes in economic security strategy beyond consistent implementation. However, the structural change of China emerging as the largest trading partner acted as a pressure promoting changes in South Korea's economic security strategy. Faced with this pressure for change, South Korea sought to adapt its economic security strategy through 'strategic ambiguity' (Ban Gil-joo 2020; Kim So-yeon 2023). It pursued a strategy of separating economy and security, maintaining a firm security alliance with the United States while continuously expanding economic relations with China. This attempt represents a separate approach to geopolitical and geoeconomic challenges.

The mercantilist character was maintained even in the pursuit of an economic security strategy based on strategic ambiguity. South Korea perceived China's economic rise as a means to overcome the 2008 global financial crisis in a narrow sense, and as an opportunity to discover new growth engines for the Korean economy in a broader sense, actively pursuing the deepening and expansion of economic relations with China. As a result, the gap between China and the United States, based on their share of South Korea's trade, widened to more than double. In the geoeconomic response based on strategic ambiguity, the mercantilist tradition was maintained in that it sought to utilize the rising China as an opportunity for industrial structure upgrading and expansion of economic growth engines.

2. Combination of Geoeconomic and Geopolitical Responses

The second characteristic that permeates South Korea's economic security strategy is the combination of geoeconomic and geopolitical responses. South Korea has simultaneously pursued geoeconomic threats such as industrial competition and geopolitical challenges such as security threats. First, the heavy and chemical industry promotion in the 1970s was also an industrial policy response to geoeconomic and geopolitical challenges. The pursuit of heavy and chemical industry promotion aimed to strengthen industrial capabilities to cultivate military capabilities in response to the North Korean security threat, thus pursuing an economic security strategy that responded to geopolitical challenges (Kim Jin-ki 2011). This was an industrial policy response strategy focused on nurturing industries that directly or indirectly contribute to defense industry capabilities or military buildup in response to the geopolitical challenge of North Korea's security threat. Notably, the nurturing of the defense industry was not solely a response strategy to geopolitical challenges but also encompassed geoeconomic responses such as upgrading the industrial structure, thus placing industrial policy at the core of South Korea's economic security strategy.

Second, the combination of geoeconomic and geopolitical responses continues in South Korea's 21st-century economic security strategy. First, the spread of "my country first" and protectionism continues to be a factor promoting geoeconomic responses. For South Korea, which has high external dependence, the need for a systematically integrated economic security strategy to respond to these trends is even greater. Simultaneously, geopolitical risks such as US-China strategic competition, the Russia-Ukraine war, and the Israel-Hamas conflict are no longer variables but constants. The practical need to integrate geopolitical risks into economic security strategy has become more pressing.

The combination of geoeconomic and geopolitical responses is clearly a characteristic that permeates South Korea's economic security strategy. However, given the changing nature of geoeconomic and geopolitical challenges, subtle changes have also occurred in the way geoeconomics and geopolitics are combined. Unlike in the past when the reality of geoeconomic challenges was somewhat ambiguous, in the 21st century, South Korea faces geoeconomic challenges with clear realities, such as the "my country first" policies of major developed countries, competitive industrial policy implementation, and economic coercion from China and Japan. As the reality of geoeconomic challenges has become clearer compared to the past, the need for corresponding geoeconomic responses has increased accordingly. A combination in detailed policies, beyond a principled combination, is now required. Furthermore, systemic geopolitical risks like US-China strategic competition and the competitive spread of "my country first" policies and protectionism at the individual country level necessitate a more sophisticated economic security strategy to integrate geoeconomic and geopolitical responses.

3. Reactive Nature

Compared to the two characteristics mentioned above, the reactive nature is a feature that developed relatively late in South Korea's economic security strategy. Until the mid-1980s, as a developing country or a member of an alliance, South Korea did not frequently face direct aggression from developed countries, including the United States, and thus did not need to rely on an economic security strategy with a reactive nature. Here, reactive nature refers to responding to the other party's aggression post-hoc rather than preemptively, and focusing on minimizing the damage and impact caused by the other party's actions.

The reactive nature of South Korea's economic security strategy began to emerge in the mid-1980s with the visible pressure for market opening from developed countries. Faced with pressure for trade liberalization and market opening at the bilateral level and multilateral level, such as through the General Agreement on Tariffs and Trade (GATT), South Korea initially pursued a strategy of delaying policy changes as much as possible as a developing country to maintain existing benefits. When accepting the other party's aggression was unavoidable, South Korea prioritized minimizing the resulting damage. From the mid-1980s onwards, US pressure for market opening expanded from agricultural products to telecommunications services, automobiles, and other sectors across the board. Faced with US trade pressure, South Korea pursued a strategy of "liberalize first, open market later," which involved delaying market opening schedules as much as possible while strengthening the competitiveness of domestic companies. This strategy cannot be called preemptive or preventive, as it did not focus on eliminating opening pressure in advance. However, it can be called a reactive economic security strategy in that it focused on minimizing the damage that could result from opening.

The reactive nature was also maintained in the response to China's economic sanctions in 2016 and Japan's export control measures in 2019. Although not typical economic coercion, South Korea also employed responses based on a reactive nature to the unilateral approaches of the United States, such as the Trump administration's demand for revision of the Korea-US FTA in 2018. Thus, the reactive nature is a key characteristic that has persisted throughout different eras in South Korea's economic security strategy.

The reactive nature also appears in response to China's economic coercion. South Korea focused on minimizing the impact of China's economic coercion rather than responding with counter-coercive measures against China. China's economic coercion initially concentrated on consumer goods and entertainment, but as anti-Korean sentiment and patriotic consumption spread in China, the effects of economic coercion expanded to South Korea's key export sectors such as home appliances, smartphones, and automobiles. The fact that Samsung Electronics' market share in China fell below 1%, despite its global smartphone market share exceeding 20% as of 2022, is related to the impact of de facto economic coercion. In response to the expansion of China's economic coercion, South Korea pursued a reactive strategy of simultaneously promoting diversification and reshoring. Vietnam, Malaysia, and India emerged as major targets for the diversification strategy.

Following the South Korean government's decision to deploy THAAD in 2016, South Korean companies are estimated to have suffered losses equivalent to about 0.5% of GDP due to China's economic sanctions. To mitigate the damage from economic sanctions, the South Korean government decided to provide subsidies to companies returning to South Korea. However, unlike the United States, which used reshoring as a core element of its economic security strategy targeting China, South Korea's reshoring policy was used as a means of industrial restructuring and transition.

Hyundai Mobis, which withdrew one production line from China, is a representative example of the government's reshoring policy. Subsequently, the South Korean government revised the "U-turn Company Support Act" multiple times to expand the scope of subsidy recipients to minimize the impact of the COVID-19 pandemic. Following China's economic sanctions, Hyundai Motor decided to sell its Beijing plant and reshore, and the government provided support for Hyundai Mobis's investment of approximately $250 million in the Ulsan region in 2019. This was the first and largest support case for a large corporation returning to South Korea. Following Hyundai Motor's divestment, the South Korean government revised the U-turn Company Support Act four times. Furthermore, the disruption of supply chains due to the spread of COVID-19 served as an opportunity to strengthen support measures for companies returning domestically.

However, the government's efforts to achieve policy goals of economic revitalization and stabilization through reshoring have been only partially successful. Companies are reluctant to return domestically because the subsidy amounts are small relative to the eligibility criteria. A typical regulation is that subsidies are provided to companies that meet both conditions of withdrawing investment from overseas and making new investments domestically. In this situation, increases in corporate taxes and labor costs have served to diminish the attractiveness of subsidy provision.

The absence of counter-coercive measures is the flip side of the reactive strategy. South Korea did not take measures of the same type in response to China's economic coercion at the bilateral level. This characteristic also appears in South Korea's international cooperation strategy. While strengthening cooperation with the United States, South Korea has repeatedly stated that it will not participate in cooperation mechanisms that contain or isolate specific countries—namely, China. In its Indo-Pacific Strategy announced in December 2022, South Korea maintained this stance, reaffirming China as a key partner country.

The spread of "my country first" policies and protectionism, triggered by the structural change of US-China strategic competition, was a decisive factor that spurred the emergence of a new economic security strategy in South Korea. As seen in South Korea's post-hoc adjustments to changes in US policy, the reactive nature of South Korea's economic security strategy is also evident in its response to the spread of "my country first" industrial policies. South Korea has focused on post-hoc adaptation to a series of policies pursued by the Biden administration—supply chain reorganization, the CHIPS and Science Act, and the Inflation Reduction Act (IRA). South Korean semiconductor companies found a way to resolve issues by obtaining annual waivers from the US government regarding the maintenance and expansion of production facilities in China. The South Korean government is reportedly discussing extending these waivers indefinitely with the US government in October 2023. In the case of the IRA, which became a subject of heated debate in South Korea, the focus was on minimizing its impact on Korean-made electric vehicles.

IV. US-China Strategic Competition and the New Economic Security Strategy

1. Strategic Utilization of Advanced Technologies

In the 21st century, South Korea has attempted to flexibly adapt its economic security strategies in response to changes in its domestic and international environment. In this process, Korea exhibits a characteristic of utilizing advanced technology as a core instrument of its economic security strategy (Lee 2022). First, Korea is exploring the potential of economic security strategies that focus on advanced technology as a nexus between economy and security. The linkage between economy and security without the mediation of a nexus amounts to mere economic coercion. Traditional economic statecraft was the exclusive domain of great powers precisely because it was utilized as a means to pressure other countries without a substantive linkage based on a nexus. The core task of the 21st century is not 'whether' to link economy and security, but 'how' to link them. The success or failure of economic security strategy hinges, above all, on the ability to effectively link issues. Linking economy and security requires the existence of a nexus that enables effective linkage. Securing this nexus is the critical factor influencing the success or failure of economic security strategy. At the individual state level, securing a nexus that enables effective linkage between economy and security is crucial (Lee Seung-ju 2022). Korea is pursuing an economic security strategy that actively utilizes advanced technology as a nexus between economy and security. Korea's pursuit of linking economy and security based on advanced technology is related to the fact that it is one of the few countries possessing advanced technological capabilities, particularly in manufacturing advanced industries. Korea employs an economic security strategy that leverages its advanced technological capabilities as leverage to counter economic coercion by great powers and to foster international cooperation. The utilization of advanced technology also offers the advantage of minimizing the domestic burdens and costs arising from the linkage between economy and security, which is why Korea closely integrates advanced technology into its economic security strategy.

Second, a differentiated change is observed in industrial policy as a means of responding to the geopolitical challenges of the 21st century. The core of a geoeconomic approach is to clearly define the nature of the challenge and strive to secure corresponding response measures. Geoeconomic responses in the process of formulating and pursuing traditional economic security strategies were based on a somewhat ambiguous perception of threats, such as responding to the pursuit by leading countries and the challenges from developing countries. However, the geoeconomic threats faced by South Korea in the 21st century are specific and clear. Korea has directly experienced economic coercion, such as China's economic sanctions concentrated in retail and wholesale, tourism, and content industries, and Japan's export controls on advanced materials that could disrupt semiconductor supply chains. While pursuing a reactive economic security strategy in response to the clear threat of economic coercion, Korea has attempted to strengthen its advanced technological capabilities as leverage to preemptively prevent China's economic coercion, and has pursued a dual strategy of strengthening the competitiveness of advanced industrial materials, components, and equipment to reduce structural vulnerabilities against Japan's economic coercion. Furthermore, advanced technology has become a key element in strengthening cooperation with the United States, which is essential for enhancing economic security. A prime example is the cooperation between South Korea and the U.S. as mutually beneficial partners in the reorganization of supply chains for advanced industries such as semiconductors and batteries, and the expansion of cooperation in advanced science and technology to areas like cyber, space, and quantum (Ministry of Economy and Finance 2023). Thus, advanced technology has emerged not only as a response to economic coercion but also as a key means for strengthening international cooperation.

Third, Korea is pursuing a change that expands the scope of traditional industrial policy, which focused on protecting and fostering domestic industries, to pursue innovation strategies for enhancing technological sovereignty. While economic security strategies based on catch-up industrial policy primarily focused on strengthening industrial competitiveness, the enhancement of technological innovation capabilities is essential for 21st-century economic security strategies. Another direction of expansion is to mitigate the structural vulnerabilities of the advanced industrial ecosystem. This also differs from past industrial policies that focused on improving competitiveness in specific sectors within specific industries, as changes aimed at strengthening the health of the ecosystem are inevitable to respond to geopolitical uncertainties.

2. Responding to the Dual Challenges of Geopolitics and Geoeconomics

Explanations that assume the separation of geopolitics and geoeconomics have limitations in explaining the interaction mechanisms between the two (Lee Seung-ju 2017). The interaction between geopolitics and geoeconomics ultimately helps explain economic security strategies, particularly industrial policies pursued at the domestic level. It is noteworthy that while South Korea's 21st-century economic security strategy still incorporates industrial policy elements in its response to the dual challenges of geopolitics and geoeconomics, it differs from traditional industrial policy. Traditional industrial policy, by aiming to protect and foster domestic industries, inherently possessed characteristics of economic security strategy. However, traditional industrial policy set a mercantilist goal of catching up, but the target of this pursuit was unclear, and it did not assign high priority to defining the nature of the challenge. It focused on strategically utilizing the external environment as a latecomer country, without focusing on clearly defining the substance of the catch-up.

In contrast, 21st-century economic security strategies are differentiated from traditional industrial policies in that they explicitly define the nature of the challenge or the competitor and seek concrete responses. The reality of 21st-century geoeconomic challenges includes economic coercion from China and Japan, the protectionism and 'own-country first' policies of major powers seeking to strengthen domestic production capabilities in key advanced industries such as semiconductors and batteries, and the spread of protectionism globally during the COVID-19 pandemic. These characteristics, in turn, influence the formulation and execution of response strategies. The spread of 'own-country first' policies and protectionism has become a decisive factor in defining the nature of challenges and the targets of response. The clarity of challenges and competitors is reflected in the search for response measures. Based on its understanding of the nature of challenges, South Korea has pursued industrial policies to strengthen supply chain resilience, diversify, and build ecosystems for key advanced industries.

Furthermore, 21st-century economic security strategies are evolving into a more comprehensive approach than narrow geoeconomic responses, as they also encompass responses to geopolitical challenges. Economic security strategies based on strategic ambiguity have tended to focus primarily on responding to geoeconomic challenges. As the strategic competition between the U.S. and China intensifies, the difficulty of maintaining an approach that separates economy and security between the two countries has become prominent. The U.S.-China strategic competition, which began with the trade war in 2018, rapidly expanded its front to advanced technologies and key industries. In this process, the U.S. sought to strengthen cooperation with its allies and partners to enhance its containment of China, while China attempted to decouple weak links from the U.S.-led cooperation network in response. South Korea has faced the dual challenges of pressure to align with U.S. policies and the increasing risk of economic coercion from China (Suri and Sharma 2023).

The experiences of South Korean semiconductor companies such as Samsung Electronics and SK Hynix well illustrate this dilemma. The Biden administration utilized the subsidies provided to semiconductor companies under the CHIPS and Science Act to achieve two goals: expanding domestic semiconductor manufacturing capabilities and delaying China's technological innovation. Samsung Electronics made an investment of $17 billion in Arizona, and SK Hynix decided to build a semiconductor backend facility in the United States. On the other hand, U.S. government subsidies became a means to restrict the expansion of production facilities by Samsung Electronics and SK Hynix, which already have advanced semiconductor production facilities in China. In October 2022, the Biden administration limited the expansion of advanced semiconductor production facilities in China by semiconductor companies receiving U.S. government subsidies to no more than 5% annually. The case of the semiconductor industry served as a catalyst for the transition in economic security strategies.

The limitations of geoeconomic responses also manifested in South Korea-China relations. South Korea, which prioritized expanding economic relations with China, encountered conflict with China in its search for means to counter the North Korean nuclear threat. When the Park Geun-hye administration decided to deploy THAAD in 2016, the bilateral relations, which had reached their peak just before, cooled down instantly. Furthermore, the Chinese government banned group tours to South Korea and implemented de facto economic coercion against cosmetics, entertainment, and retail industries. The resulting economic damage was estimated to be 0.5% of South Korea's GDP (Han Jae-jin 2017). This revealed the limitations of the strategic approach of strengthening security cooperation with the United States while expanding economic relations with China. This background highlighted the necessity of responding to the dual challenges of geopolitics and geoeconomics in South Korea's economic security strategy.

3. Seeking a Preemptive Strategy

1) Mitigating Structural Vulnerabilities

South Korea is strengthening efforts to mitigate structural vulnerabilities. This also implies complementing the limitations of reactive strategies, as it contains an element of preemptive response to economic coercion. The mitigation of vulnerabilities is proceeding on two fronts. First, Korea has pursued a reduction in its dependence on China. As a result of actively leveraging China's economic rise after the 2008 global financial crisis, South Korea's trade with China expanded rapidly. However, the problem is that the trade relationship between South Korea and China is a typical example of asymmetric interdependence. This is fundamentally related to why China could exercise economic coercion against South Korea.

Concurrently, South Korea has made government-wide efforts to mitigate structural vulnerabilities in its supply chains. South Korea is not alone in experiencing supply chain disruptions amidst the U.S.-China strategic competition and the global spread of COVID-19. However, in the process of expanding economic relations with China since the 2000s, South Korea formed a division of labor structure with China. During this process, Korea's dependence on China increased in the upstream segments of the value chain. According to the results of supply chain vulnerability analyses conducted by the South Korean government, the number of items with high vulnerability to China in intermediate goods such as materials, components, and equipment reached a staggering 604 (Kim Bau et al. 2021). The South Korean government's proposal of policies to mitigate structural vulnerabilities in the materials, components, and equipment sectors is intended not only to respond to potential future supply chain disruptions but also to counter economic coercion.

2) Securing the Nexus of Industrial Policy and Technological Innovation

South Korea's economic security strategy shows a growing reliance on policy instruments focused on strengthening industrial competitiveness and technological innovation capabilities in its geoeconomic responses. Integrating the technology-industry nexus into its economic security strategy is a priority for achieving geoeconomic objectives. The importance of government policies focused on responding to competitors at the forefront of advanced technology is increasing. A new characteristic of economic security strategy is the pursuit of a strategy focused on the nexus of industrial policy and technological innovation, moving beyond industrial policies narrowly focused on strengthening industrial competitiveness. South Korea has pursued a transformation towards an economic security strategy focused on enhancing its advanced technological capabilities. In particular, a characteristic of South Korea's economic security strategy is the strengthening of the advanced technology-industry nexus, which links the enhancement of advanced technological innovation capabilities and industrial competitiveness with the stabilization and resilience of supply chains (see Table 1).

South Korea's strategy of supply chain management-advanced technology innovation-industrial policy is pursued not only individually but also on two interconnected fronts: the linkage between supply chain management and advanced technology innovation, and the linkage between advanced technology innovation and industrial policy. First, the linkage between supply chain management and advanced technology innovation. In relation to supply chain strategy, South Korea has prioritized strengthening the legal and institutional foundation of supply chain management through the enactment and amendment of the "Supply Chain Three Laws." In 2023, Korea designated 33 types of critical minerals, including lithium, nickel, cobalt, and manganese, and selected 10 critical minerals that are urgently needed for supply chain stabilization. The criteria for critical minerals considered supply risk and impact on the domestic economy (Ministry of Trade, Industry and Energy 2023).[4]What is noteworthy is that it goes beyond defensive supply chain management to link it with the fostering of advanced technologies. The nurturing of core strategic technologies for strengthening the competitiveness of the materials, components, and equipment (MCE) industries is being pursued within the framework of supply chain management.

Second, the linkage between advanced technology innovation and industrial policy. As evidenced by the Ministry of Science and ICT's selection of 10 national strategic technologies in 2021 and the Ministry of Trade, Industry and Energy's formulation of the "Super Gap R&D Strategy" in April 2023, South Korea is pursuing a strategy that links advanced technology innovation with strengthening industrial competitiveness. Expanding the scope of industrial policy to link it with advanced technology innovation has the effect of complementing the limitations of reactive economic security strategies. The South Korean government's selection of 12 key national strategic technologies in December 2021 and its decision to provide focused support clearly demonstrate the importance of enhancing advanced technological capabilities in South Korea's economic security strategy. The government made these decisions recognizing that strengthening technological sovereignty not only serves as a means to respond to competition in advanced technologies but also as leverage for cooperation with other countries. As seen in the cases of semiconductors and batteries, South Korea, as a nation with advanced technological innovation and manufacturing capabilities, is receiving numerous requests for cooperation from many countries. The continuous enhancement of technological innovation capabilities contributes to strengthening international cooperation and preemptively preparing for uncertainties such as U.S.-China strategic competition, making the utilization of advanced technology a key element of South Korea's economic security strategy.

<Table 1> Linkage of Supply Chain-Technology Innovation-Industrial Policy in South Korea

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Source: Compiled from various materials by the author.

The promotion of advanced industries explicitly pursues the enhancement of technological sovereignty and strengthening of competitiveness. This is the result of a strategic judgment that Korea must maintain its leading position at the forefront of advanced technology. In this respect, Korea's strategic judgment can be said to be based on geoeconomic factors detached from geopolitics. Being at the forefront of advanced industries means that risks transform into uncertainties, and at such times, an expansion, not a reduction, of the state's role is required. Various government roles are necessary, such as patient capital, enhancing corporate capabilities through network-based cooperation, and creating demand through government procurement. To effectively perform these roles, establishing appropriate governance is essential.

V. Conclusion and Policy Recommendations

In an era of hyper-uncertainty, the top priority of economic security strategy should be risk management, not profit maximization. Risk management refers to organically linking issues, effectively combining measures, and maintaining harmony and balance between constraints and opportunities.[5]Risk management sometimes requires the strategic simultaneous pursuit of policies whose effects or benefits are expected to offset each other. Through this, even if national interests are not maximized, risks can be managed while securing an appropriate level of national interest.

As the linkage between economy and security becomes inevitable in the 21st century, the return of economic statecraft is drawing attention (Aggarwal and Reddie 2020). South Korea's economic security strategy needs to integrate and encompass its hard power, international political status, position within the global economic network, and the nature of strategic challenges, while also aiming to combine universality and particularity in responding to global challenges, including South Korea's contribution. It is important to note that pursuing a 'Korean-style' economic security strategy that excessively emphasizes Korea's particularity carries the risk of provoking protectionism and creating an unfavorable external environment for a country with high external dependence like South Korea.

Considering this reality, the first strategy for South Korea's economic security strategy is linkage. In an era where economic and security domains are linked, securing as many nexuses as possible is crucial for achieving strategic advantage. Linkage strategies can be divided into issue linkage and forum linkage. Regarding issue linkage, South Korea needs to pursue an international cooperation strategy based on strengthening advanced technological capabilities that can be utilized for the effective linkage of economy and security. Linkage strategies are also necessary for utilizing various forums, including bilateral, mini-lateral, regional, and multilateral ones. South Korea needs a strategy that makes the ROK-U.S. alliance the core of its international cooperation strategy, but does not operate it exclusively, instead linking it with various cooperation forums.

The second strategy for South Korea's economic security is the organic combination of diverse interests. In an era of hyper-uncertainty, the scope of interests that a nation should pursue inevitably expands, and in this process, the possibility of goal misalignment, and even conflict, is high. South Korea is also pursuing seemingly conflicting goals of strengthening technological sovereignty and promoting international cooperation. In normal times, strengthening technological sovereignty is perceived as an exclusive strategy aimed at competition with other countries, making it difficult to harmonize with international cooperation strategies. However, a strategic approach is required to resolve the internal tension between these two potentially conflicting goals and, furthermore, to create synergy between them. Especially in the current era of hyper-uncertainty, strengthening technological sovereignty is unavoidable. However, rather than pursuing the strengthening of technological sovereignty exclusively, it is necessary to use it as a means for international cooperation. This is because if advanced technological capabilities are not secured, South Korea will not be invited to discussions for international cooperation.

The third strategy for South Korea's economic security is the balance between national interest and private interest. In an era where cooperation and coordination between the state and the private sector are essential for enhancing economic security, the importance of cooperation between the government and corporations cannot be overstated, especially since companies are the actual agents implementing economic security strategies. However, it is important to note that national interests and corporate interests are not always the same and can sometimes conflict. Moreover, when the gap between national interests and corporate interests widens, the utility of economic security strategies inevitably decreases. In this regard, it is no exaggeration to say that the effectiveness of economic security strategies depends on the state's ability to integrate corporate interests (Norris 2016). This is why a balanced approach to national interests and corporate interests is necessary. Rather than independently leading economic security strategies, the state needs to systematically understand the interests and strategies of corporations as the primary agents of implementing economic security strategies and pursue the role of a facilitator. ■

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[1]There are studies that associate the discovery of mercantilist characteristics in economic security strategies with the capabilities of the developmental state (Katada et al. 2023; Carroll 2023). However, the mercantilist nature of economic security strategies is differentiated from the typical developmental state theory, which focuses on the role of government during the high-growth period, in that it persists even in the post-catch-up phase.

[2]For a counterargument, see Irwin (2023).

[3]Economic sanctions against North Korea following the North Korean nuclear crisis are not a typical example of an economic security strategy.

[4]Economic impacts considered import volume, demand expansion, industrial importance, and critical minerals for carbon neutrality. Supply risks considered resource endowment, supply-demand instability, ESG compliance, and risk response capabilities (Ministry of Trade, Industry and Energy 2023).

[5] The conclusion and policy recommendations are based on Lee Seung-ju (2022).

■ Lee Seung-ju_Director, Center for Trade, Technology, and Transformation, East Asia Institute; Professor, Department of Political Science and International Relations, Chung-Ang University.

■ Editor: Lee Ju-yeon_Research Fellow, EAI

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