US-China Economic War and Korea: The Rise of Economic Security, Crisis, and Opportunity

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The US-China Economic War Presents a Great Challenge to Korea

As the era of globalization ends and a new normal emerges where countries promote protectionism and national self-interest, leading to the fragmentation (decoupling) of the global economy, Korea faces trials. In particular, the US-China trade war, which began in 2018, has expanded into a strategic competition linked to national security in the 2020s. For Korea, which has both the US and China as major trading partners and whose vital interests are critically affected by the dynamics of its relations with both countries, the division and confrontation between the US and China pose a significant challenge. Korea is faced with the critical task of maintaining the competitiveness of its semiconductor and automotive industries amidst the dual pressures of the US's decoupling demands and China's economic retaliation.

This book examines the impact of the US-China economic war on Korea and Korea's response strategies. It investigates the global economic order's turmoil and challenges in response to geopolitical risks stemming from US-China strategic competition, and the impact on Korea resulting from major powers' strategies linking economy and security, along with its past responses. Each chapter analyzes case studies from key industrial sectors such as semiconductors, batteries and critical minerals, automobiles, finance, and military AI, as well as the economic security strategies of the US, the European Union, China, and Korea.

EAI International Political Economy Experts Propose a Way Forward for Korea Amidst the Rise of Economic Security

The international political economy experts from the East Asia Institute (EAI) who participated in writing this book consider Korea's path forward by comparatively analyzing the concepts and strategies of economic security in the US, China, and the European Union, focusing on the changes in US-China economic security strategies surrounding key industries and technologies.

In the Preface, Son Yeol, President of EAI and Professor at Yonsei University, reviews the theoretical relationship between economic interdependence and national security. He traces the process by which deepening economic interdependence between the US and China, coupled with China's economic growth, ultimately led to the Trump administration's adversarial trade policies. He introduces the concept of de-risking as a response to decoupling strategies aimed at excluding China or reducing dependence on China, and poses questions about how both countries perceive risks and how Korea is affected by de-risking strategies.

In Chapter 1, Bae Young-ja, Professor at Konkuk University, identifies semiconductor supply chain stability as a key element of US-China economic security. She predicts that efforts to achieve technological innovation capabilities and foster international cooperation through semiconductor industry policies will determine the success or failure of the US-China economic war. She also suggests that Korea, as a major producer of advanced semiconductors, is within the sphere of influence of US-China semiconductor competition and must possess the leadership and execution capabilities to secure independent technological prowess and leverage it as a diplomatic asset.

In Chapter 2, Kim Yeon-kyu, Dean of the Graduate School of International Studies at Hanyang University, introduces the strategies of major countries, such as the US Inflation Reduction Act and the EU Critical Raw Materials Act, aimed at reducing developing countries' dependence in the electric vehicle battery and critical mineral supply chains. He further emphasizes the need for Korea to diversify its supply sources to ensure the stability of critical mineral supply and proposes mineral cooperation with countries like Canada and Australia, as well as multilateral cooperation frameworks with countries in Africa, Latin America, and Southeast Asia.

In Chapter 3, Lee Wang-hwi, Professor at Ajou University, points out that the conflict is intensifying as Western countries' legislative efforts to curb China's burgeoning electric vehicle industry clash with China's metal export controls and efforts to promote foreign direct investment. He highlights this as a critical economic security issue for Korea, whose main industry is automobiles. Considering Korea's economic and market size and geopolitical landscape, he suggests that it is difficult to pursue independent economic security with strategic autonomy. Therefore, he advises diversifying sources of materials, parts, and equipment to compensate for vulnerabilities, while being careful not to exclude any specific country.

In Chapter 4, Lee Yong-wook, Professor at Korea University, explains the phenomenon of deepening financial interdependence between the US and China amidst their strategic competition from the perspective of "hostile complicity," where political leaders in each country designate the other as a security threat for domestic political gain. He further predicts that economic interdependence can become a weapon to pressure the other party according to the flow of international politics. He argues that Korea must establish collective policy mechanisms with major powers through central diplomacy in the financial sector and develop both offensive and defensive strategies towards both the US and China.

In Chapter 5, Jeon Jae-sung, Director of the EAI Center for National Security Studies and Professor at Seoul National University, predicts that the side that secures superiority in strategic competition through innovation in artificial intelligence (AI) technology and fully autonomous weapon systems will gain the upper hand. He notes that in the current situation where international norms for AI operation have not yet been established, countries are competitively pursuing the use of military AI. He further points out that coordination issues with allies and partners under the US-led multilateral system to counter China's advancements are crucial. He advises that Korea must manage its relations with the US and China to prevent its national interests from being compromised during this coordination process, and also strive to propose norms to prevent the development of AI from leading to its catastrophic militarization.

In Chapter 6, Lee Hyo-young, Professor at the Korea National Diplomatic Academy, introduces the strategies of the US and Europe, which advocate for de-risking to resolve their trade deficits with China, citing policies such as easing import/export regulations and providing subsidies for the benefit of regional companies. She assesses that these measures focus on strengthening the resilience of their domestic economies in response to multifaceted challenges including geopolitical competition, supply chains, health, and technology. She suggests paying attention to the policy differences between the US, which adopts aggressive export controls against competitor nations, and Europe, which adopts a relatively cautious risk-based approach by assessing the severity of internal and external risk factors.

In Chapter 7, Kim Yong-shin, Professor at Inha University, analyzes the foreign policy perceptions and strategies of the Xi Jinping administration, which frames economic security as a subordinate concept to overall national security and a core command target of the Party. It identifies China's dependence on the West, challenges from emerging developing countries, and unilateralism in international trade as major threat factors amidst US-China strategic competition. He posits that China's economic security objective is to secure the material basis for the sustainability of the Xi Jinping administration and the Party, and for national prosperity. He advises that Korea must be mindful of the potential for a comprehensive competitive relationship between the two countries in advanced technology and critical mineral sectors, and the complex dependence on China-centric supply chains that could arise from China's centralized economic security policies, and must develop preemptive responses.

In Chapter 8, Lee Seung-joo, Director of the EAI Center for Trade, Technology, and Transformation and Professor at Chung-Ang University, analyzes Korea's strategy of combining geopolitical and geoeconomic responses amidst the dual challenges of geopolitical risks from US-China strategic competition, and geoeconomic challenges of national self-interest, protectionism, and economic coercion. He further proposes a direction for Korea's economic security: securing strategic advantage through effective linkage of economy and security; an approach that mitigates the conflict between securing technological sovereignty and pursuing international cooperation while generating synergy; and cooperation and coordination to balance national and private interests. He suggests that advanced technologies should serve as the foundation for this.

Table of Contents

Foreword _ 7

Preface Balancing Economic Interdependence and National Security _ 11

Son Yeol | Yonsei University/EAI

Part I: Responses by Industrial Sector

Chapter 1 Restructuring of the Semiconductor Industry and Korea's Response Strategy _ 35

Bae Young-ja | Konkuk University

Chapter 2 Restructuring of the Electric Vehicle Battery Supply Chain and Strategies for Securing Critical Minerals _ 65

Kim Yeon-kyu | Hanyang University

Chapter 3 The Rise of China's Electric Vehicle (EV) Industry and Its Implications for Korea's Economic Security _ 96

Lee Wang-hwi | Ajou University

Chapter 4 Deepening Financial Interdependence Amidst US-China Strategic Competition: A Paradox or the Prelude to Weaponization? _ 127

Lee Yong-wook | Korea University

Chapter 5 The Political Economy of Military Artificial Intelligence Amidst US-China Strategic Competition _ 157

Jeon Jae-sung | Seoul National University

Part II: Responses by Major Countries

Chapter 6 Economic Security Policies of the United States and the European Union in Response to US-China Technological Hegemony Competition _ 191

Lee Hyo-young | Korea National Diplomatic Academy

Chapter 7 China's Economic Security: Concepts and Strategies _ 213

Kim Yong-shin | Inha University

Chapter 8 The Dual Challenges of Geopolitics and Geoeconomics and the Continuity and Change in Korea's Economic Security Strategy _ 233

Lee Seung-joo | Chung-Ang University