[EAI Online Seminar] COVID-19 and the New World Order 5. US-China Economic Decoupling and Korea's Strategy (Co-hosted with Stanford APARC)

YouTube Link: https://www.youtube.com/watch?v=Hoz0cXtQfR4

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The East Asia Institute (Director: Son Yeol) co-hosted an online seminar with the Walter H. Shorenstein Asia-Pacific Research Center (APARC) at Stanford University on "US-China Economic Decoupling and Korea's Strategy." At this seminar, EAI invited domestic and international experts to discuss the economic, trade, and diplomatic/security challenges presented by US-China economic decoupling and Korea's strategy.

• Date and Time: September 18, 2020, 9:00-10:40 (KST)
• Speakers: David Kang(Director of the Korean Studies Institute at USC; Professor at USC), Park Tae-ho(Director of the International Trade Institute at Bae, Kim & Lee LLC; Former Second Vice Minister of Foreign Affairs and Trade), Lee Seung-joo(Director of EAI; Professor at Chung-Ang University), Charles Freeman(Executive Vice President for Asia at the U.S. Chamber of Commerce)
• Moderators: Son Yeol(Director of EAI; Professor at Yonsei University), Shin Gi-wook(Director of APARC; Professor at Stanford University)

I. Prospects for US-China Decoupling

US-China Decoupling: Focus on Industries Rather Than Nations

• Charles Freeman believes the United States is dissatisfied with China's comprehensive national influence. He views the US response to China's plan to dominate global 5G, artificial intelligence (AI), and other new technologies as the fundamental cause of the current US-China competition. He also cited remarks from a senior White House official, indicating that despite numerous US IT companies maintaining business ties with Huawei, the US will not tolerate any business relationship with Huawei in the long term. Given the ongoing US pressure on Huawei, decoupling in specific industries is inevitable, and the US is expected to compel partners like South Korea to decouple in these industries by leveraging its economic influence and coercive power.
• Professor Lee Seung-joo, on the other hand, points out that signs of technological competition between the US and China surrounding regional supply chains emerged in the early 2000s, predating the rise of US-China strategic competition. However, he argues that global value chains are transforming into regional value chains due to the structural changes in East Asia, which have clarified the hierarchical nature of supply chains. He conveys that China will further strengthen its pivotal role within these supply chains. Furthermore, he notes that changes in the structure of economic supply chains are driven by specific industrial issues rather than state initiatives. From a corporate perspective, supply chain decoupling is part of corporate strategy and varies by industry. For instance, Samsung's FDI in Vietnam over the past two decades has been concentrated in smartphones and flat-panel displays, while Samsung's FDI in China over the last three years has focused on semiconductor investments, showing industrial differences.
• Former Minister Park Tae-ho assesses that while the US-China trade dispute and the COVID-19 pandemic are impacting global business activities, there is insufficient evidence of actual decoupling in industrial sectors between the two countries.
• Professor Lee Yong-seok explains that the ongoing US-China economic decoupling is concentrated in the high-tech sector. The Chinese government currently controls numerous high-tech companies, and competition is intensifying around Huawei's 5G, TikTok, and WeChat. However, he argues that the increase in joint ventures between the two countries could also be interpreted as the dawn of an era of integration between the US and China.

II. US Challenges and Strategy

Domestic and External Challenges for Building US Regional Leadership

• Professor David Kang suggests that for the US to maintain its global leadership amidst intensifying US-China competition, it needs to focus on domestic issues rather than competing with China. He believes that domestic challenges are more critical than the external threats surrounding the US, and if the US effectively addresses these domestic challenges, it can maintain its global influence.
• Professor Lee Seung-joo argues that despite China's rise, US regional influence will remain unchanged. He conveys that while China's economic rise has accelerated decoupling, many East Asian countries have begun to view China with caution rather than economic dependence, and the resulting regional rebalancing will actually reduce economic dependence on China. He also notes that the US is making efforts to maintain the support of East Asian countries by presenting comprehensive alternatives like the Economic Prosperity Network (EPN), rather than pressuring them to choose sides.
• Charles Freeman concurs, suggesting that the US should focus on building practical cooperation frameworks like the EPN, rather than using security issues as a tool in bilateral trade relations with its allies.

Next US Administration Likely to Continue Pressure on China

• Charles Freeman predicts that even if Joe Biden is elected, the US will continue a similar policy toward China as the current Trump administration. Regardless of the next administration, the US will likely maintain the trend of US-China decoupling by continuously responding to the threats posed by China in advanced technology sectors such as telecommunications and AI.
• Former Minister Park Tae-ho also argues that a Biden administration would continue to exert pressure on China, but it might adopt a slightly different approach than the Trump administration, which pursued a unilateral path. In contrast to President Trump's unilateralism, Biden is expected to exert collective pressure with like-minded nations on issues such as China's state capitalism and intellectual property protection. This approach is considered more persuasive, especially given the existence of regional blocs like the European Union (EU) that seek cooperation with the US.

III. Korea's Choices Amidst Decoupling

Korea Should Avoid a Binary Choice in the Face of US-China Decoupling

• Professor David Kang argues that while South Korea and the United States have a strong alliance, South Korea acts in its own national interest, and the perception that Korea must always side with the US is undesirable. He points out that given Korea's geographical proximity to China, siding with the US is unrealistic. To address security issues related to North Korea, South Korea requires security cooperation from both the US and China, necessitating a flexible and wise approach to maintain political and diplomatic balance between the two powers.
• Director Shin Gi-wook argues that issues related to the ROK-US alliance should be decoupled from US-China economic decoupling. Professor Shin also argues that rather than decoupling from the US or China as a nation, Korea should decouple the ROK-US alliance from US-China strategic competition. Accordingly, while Korea considers the ROK-US alliance as a basis for its national policy, it is expected to avoid participating in the US-led Indo-Pacific strategy or becoming involved in US-China strategic issues such as the South China Sea dispute.

Turning Crisis into Opportunity: Supply Chain Reorganization, Technological Development, and Comprehensive Exchange

• Professor Lee Seung-joo warns that the trend of trade tensions between the US and China could weaponize interdependency in East Asia, and he does not rule out the possibility of Korea becoming a victim. In this context, Professor Lee suggests that Korea strategically and skillfully leverage the US's offensive against China in the short term, emphasizing the need for Korea to establish itself as an alternative to Huawei in the 5G competition. He also points out that US-China technological competition will reshape regional supply chains, and Korea needs to diversify and reconfigure its own supply chains while maintaining existing supply chains in China. However, he warns that this process should not appear as an exit from or containment of China.
• Charles Freeman believes that Korea, through its advanced technology companies such as Samsung and SK Hynix, can counter Huawei in the 5G sector. He particularly anticipates opportunities in places like the US, which lacks its own 5G technology.
• Former Minister Park Tae-ho argues that although Korean companies are facing difficulties due to current US sanctions on Huawei, the overall impact of these US policies toward China on Korean corporate supply chains is limited. He also believes that expanding exchanges with ASEAN and Central Asian countries through the Southward and Northward policies currently pursued by the Korean government could serve as a potential alternative to US-China decoupling. ■

■ David Kang David Kang is the Maria Crutcher Professor in International Relations, Business and East Asian Languages and Cultures at the University of Southern California (USC) and the Director of the Korean Studies Institute at USC. He received his B.A. from Stanford University in International Relations and Anthropology and his Ph.D. in Political Science from the University of California, Berkeley. His primary research area is East Asian international relations. His recent books include "American Grand Strategy and East Asian Security in the 21stst ^{Century " (2017), "}East Asia Before the West: Five Centuries of Trade and Tribute" (2010), and "China Rising: Peace, Power, and Order in East Asia" (2007).China Rising: Peace, Power, and Order in East Asia (2007) etc.

■ Park Tae-hoPark Tae-ho is the Director of the International Trade Institute at Bae, Kim & Lee LLC and an Emeritus Professor at Seoul National University. He graduated from Seoul National University with a degree in Economics and earned his Ph.D. in Economics from the University of Wisconsin-Madison. He served as Korea's Chief Trade Negotiator (2013-2014), Second Vice Minister of Foreign Affairs and Trade (2011-2013), and Chairman of the Trade Commission (2007-2010). He was also a visiting scholar at Stanford University and the World Bank (2004) and a visiting scholar at the International Monetary Fund (1998). He served as Dean (2006-2010) and Professor at the Graduate School of International Studies at Seoul National University, and as an Assistant Professor of Economics at Georgetown University. He also held positions as Deputy Head of the Korea Development Institute for International Economic Policy, Economist seconded to the Presidential Secretariat, Research Fellow at the Korea Development Institute for International Economic Policy, and Research Fellow at the Korea Development Institute. His books include "International Trade Theory" (co-authored, 1998), "Principles of International Economics" (co-authored, 2002), and "Understanding the Korean Economy" (co-authored, 2005).

■ Son YeolDirector of EAI and Professor at Yonsei University's Graduate School of International Studies. He received his Ph.D. in Political Science from the University of Chicago. He has served as Dean of Yonsei University's Graduate School of International Studies, Dean of Underwood International College, President of the Association for Japanese Studies in Korea, and President of the Korean Political Science Association. His main research areas include international political economy, Japanese foreign policy, and East Asian international relations. His recent publications include *The Diplomatic Security and Political Economy of Low Fertility and Aging Population* (2019, co-authored),Japan and Asia's Contested Order (2018, with T.J. Pempel), *South Korea's Middle Power Diplomacy* (2017, co-authored),Understanding Public Diplomacy in East Asia (2016, with Jan Melissen), among others.

■ Gi-Wook ShinDirector of the Asia/Pacific Research Center (APARC) and Professor of Sociology at Stanford University. He previously served as the William J. Perry Professor of Korean Studies and a Senior Fellow at the Freeman Spogli Institute for International Studies at Stanford University. He graduated from Yonsei University with a degree in Sociology and earned his M.A. and Ph.D. in Sociology from the University of Washington. His main research areas include social movements, nationalism, and international relations. His recent publications include Strategic, Policy and Social Innovation for a Post-Industrial Korea: Beyond the Miracle (2018, co-authored), Superficial Korea (2017), Divergent Memories: Opinion Leaders and the Asia-Pacific War (2016), among others.

■ Shin Sung-hoProfessor at Seoul National University's Graduate School of International Studies. He graduated from Seoul National University with a degree in Diplomacy and received his M.A. and Ph.D. from the Fletcher School of Law and Diplomacy, Tufts University. He has held positions as a CNAPS Fellow at the Brookings Institution and a Visiting Fellow at the East-West Center. His main research areas include military security, U.S. foreign policy, and East Asian and Korean Peninsula affairs. His publications include *The North Korean Nuclear Issue and Peace Settlement on the Korean Peninsula* (2008, co-authored) and “Dilemma of South Korea’s Trust Diplomacy and Unification Policy” (2014, International Journal of Korea Unification Studies), among others.

■ Lee Seung-juDirector of the Trade, Technology, and Transformation Center at EAI and Professor of Political Science and International Relations at Chung-Ang University. He received his Ph.D. in Political Science from the University of California, Berkeley. His main research areas include international political economy, the politics of trade, and global digital governance. His major publications include *The Political Economy of Cyberspace* (edited by Lee Seung-ju), “Institutional Balancing and the Politics of Mega FTAs in East Asia,” Northeast Asia: Ripe for Integration? (co-edited), Trade Policy in the Asia-Pacific: The Role of Ideas, Interests, and Domestic Institutions(co-edited), among others.

■ Yong Suk LeeSK Fellow at the Freeman Spogli Institute for International Studies (FSI) and Deputy Director of the Asia/Pacific Research Center (APARC). He graduated from Seoul National University with a degree in Architecture and received his Ph.D. in Economics from Brown University. His main research areas include labor economics, technology, and urban economics. His major publications include “Modern Management and the Demand for Technical Skill” (2018, Labour Economics), Strategic, Policy and Social Innovation for a Post-Industrial Korea: Beyond the Miracle (2018, co-authored), among others.

■ Charles FreemanSenior Vice President for Asia at the U.S. Chamber of Commerce. He graduated from Tufts University with degrees in Asian Studies and Economics and received his Juris Doctor from Boston University’s School of Law. He has served as Deputy Assistant U.S. Trade Representative for China, Legislative Assistant to a U.S. Senator, and the CSIS Freeman Chair in China Studies.

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