Redesigning the Zero Era: Rewriting Innovation [EAI-SBS Foundation]

YouTube Link: https://www.youtube.com/watch?v=VnnmkP56AlQ

Video Script

We consider the redesign of the zero era at the level of the international order. SBS Foundation and the East Asia Institute conducted joint research. We are now in an era where the economy is security, and security is the economy. What is the path we should take in this trend of the times? We invite researchers who can provide a sophisticated answer to this question. We invite Professor Lee Seung-joo of the Department of Political Science and International Relations, Dean of the College of Social Sciences at Chung-Ang University. Please give him a big round of applause. Our research team has undertaken three tasks to answer the question of how the future world order will change.

First, we comprehensively reviewed scenarios for the future world order and narrowed down the scope to the most likely scenario. Second, in forecasting the future world order, we analyzed the characteristics and differences in trade, technology, industry, and security sectors, and focused on the aspects where security and the economy are linked. Third, based on the analysis of the future vision of the new world order, we aim to present a national strategy that South Korea should pursue. The general outlook is that the existing world order, which has lowered barriers between nations and integrated markets based on rules, will be very difficult to sustain in the future.

Fragmentation and Club Formation of the World Order

This is because the forces of fragmentation, which are splitting the world into several parts, are already strongly at play, driven by the weakening of US leadership, US-China strategic competition, increasing geopolitical risks, and the experience of supply chain disruptions due to the pandemic. While our research team agrees with this outlook, we focus on the fact that after fragmentation, the world will enter a process of new boundary-setting. We define the nature of the order that will be established through the process of new boundary-setting as club formation. A clubbed world is a complex order formed after the past, when integrated world markets were formed based on security systems, and the present, where separation, differentiation, and fragmentation are progressing as a result of major world powers prioritizing their own interests.

A "Trump 2.0" administration in the United States is different from the past US that exerted leadership in designing and maintaining the world order. The "Trump 2.0" era US is prioritizing US national interests and demanding that allies secure independent defense capabilities, rather than exercising leadership for the stability of the world order. The characteristics of the US world strategy in the Trump era are vividly revealed in statements such as "each country must protect its own citizens" or "we will not defend if allies do not pay the costs." In this situation, the world is undergoing fundamental changes, and there are three reasons for this.

First, unlike in the past, an era has arrived where it is impossible for one country to be solely responsible for leadership in the world order. Transnational challenges such as climate change and ecological crises, frequent large-scale natural disasters, and the spread of pandemics are rapidly increasing, and these challenges are difficult for any single country to solve. Transnational challenges require transnational responses. Second, as a consequence of globalization, economic inequality has increased domestically, which in turn has created a vicious cycle leading to political populism. Nationalism and exclusive self-interest are spreading, weakening democracy and norms.

Third, strategic competition between the United States and China is intensifying. Strategic competition is not limited to one area but is a comprehensive competition for the direction of US-China hegemony. As shown by the Lowy Institute's Asia Power Index, the US and China are competing across the board, from military power, defense networks, economic relations, diplomatic influence, resilience, to future resources. The US and China, which have the capacity to lead in addressing transnational challenges, are prioritizing competition over cooperation. In this situation, the global security order is increasingly being reorganized around clubs with a more closed nature, and further, around blocs.

Securitization of the Economy and Economization of Security

As the US and China form blocs, a loose club format also emerges among US allies such as South Korea, Japan, and Australia, which maintain economic ties with China. The non-Western alliance, including China, Russia, Iran, and North Korea, also does not form a complete bloc due to complex economic and strategic interests. The reorganization of the world order, termed strategic fragmentation, is expected to continue for a considerable period. From now on, we will examine club formation. There are two key drivers that promote club formation, or new boundary-setting: the securitization of the economy and the economization of security.

What is the securitization of the economy? This is a phenomenon where trade, science and technology, supply chains, etc., which in the past prioritized purely economic efficiency, are now perceived as security issues that threaten national survival. During the first Trump administration, the US defined China's unfair practices as economic aggression, which posed a threat to US national security. The securitization of the economy also appears in specific industrial sectors. This is why there are concerns that dependence on a specific country's semiconductor supply chain becomes a fatal weakness for national security.

Friend-shoring or ally-shoring, where the US views its lack of domestic semiconductor production capacity as a threat to national security and demands that allies and friendly nations like South Korea and Taiwan produce semiconductors within US territory, is a prime example. Meanwhile, the economization of security refers to the deep involvement of economic logic in security issues, such as traditional military alliances. Demanding more defense cost-sharing from allies or perceiving support for countries at war as an opportunity for the growth of the defense industry are typical examples.

As the securitization of the economy and the economization of security interact synergistically, the world is rapidly fragmenting. The clubbed world that will emerge from the process of fragmentation will have the following characteristics. First, it is highly likely that two clubs, centered around the US and China, will form a relationship of mutual competition and conflict. Not only will the US and China compete on a one-on-one basis, but the phenomenon of forming clubs with friendly nations and competing with the opposing club will further expand.

However, the two clubs will not be in equal balance. As can be seen in the figure on the right, the US-centric club and the China-centric club are expected to form a ratio of approximately 42 to 27 in terms of their share of the global economy, with neutral countries not belonging to either club accounting for 31%. Second, within the clubs, centripetal and centrifugal forces will act simultaneously. Centripetal force refers to the fact that as competition intensifies, the US and China not only individually check competing countries within their clubs but also strongly demand policy synchronization from countries within the club to enhance the effectiveness of their checks.

The US demanding that not only its own companies but also its allies and partner countries participate in export controls to enhance the effectiveness of its export controls on AI semiconductors to China is a prime example. In China's case, there are also numerous instances of exercising economic coercion against countries deemed to be infringing on its interests or refusing cooperation in its foreign policy. However, as the intensity of pressure increases, centrifugal forces will operate, weakening the clubs as countries within them feel the burden of costs and damages. The third characteristic of a clubbed world is that, unlike perfectly disconnected blocks, a certain level of connection, or club permeability, will be maintained between the clubs.

Permeability proceeds on two levels. First, even if the two clubs compete, exchanges will be maintained without complete economic or industrial separation. The US and China, while attempting decoupling in advanced industries, find it difficult to abandon access to each other's markets. The US's permission for Nvidia's H20V AI chip export to China, while strengthening export controls on semiconductors to China, clearly demonstrates club permeability. Permeability will also be maintained by countries that are referred to as connecting countries or swing states.

Changes in Trade, Supply Chain, and Technology Order

While the US and China-centric clubs strive to reduce their influence over the opposing club, they are increasing economic exchanges with connecting countries that do not belong to any club. As shown by the research results of the European Central Bank on the right, the US and China clubs are increasing their trade with connecting countries in the middle, and this trend is expected to continue in the future. Next, we will examine the content discussed so far in more detail, divided into trade, supply chains, and technology. This slide visually shows the extent of global order fragmentation through changes in trade networks between 2018, when the US-China trade war began, and 2023.

In 2018, on the left, the US, China, and Germany occupied key positions in regional trade clusters, with the US and China closely connected. This signifies that an open world trade order was still maintained. The world trade order in 2023, on the right, shows a dramatic change. The connection between the US and China has significantly weakened. Simultaneously, countries marked by yellow squares, such as Japan, India, and Singapore, have moved away from the China-centric club and shifted towards the US-centric club.

Significant changes are also occurring in the advanced industrial supply chain order. First, the decoupling between the US and China has become clear. Unlike in 2018, when China served as a supplier to the US in advanced industries, a significant weakening of US-China supply chain connections occurred in 2023. Second, a crack in the China club. Japan and Thailand, which were key partners of China in 2018, have moved away from the China-centric supply chain and shifted towards the US-centric supply chain in 2022. The reorganization of supply chains is intensifying as South Korea and Japan join the US-led friend-shoring.

Meanwhile, China will respond to these changes by building its own indigenous supply chains. Major changes are also detected in the future world technology order. In 2018, the patent citation network between countries showed the US and Japan as the clear axes of technology clubs. However, in the technology network of 2023, five years later, the US-centric technology club remains solid, but China has emerged as the central axis replacing Japan in the Asian club. However, in terms of scale, as key members South Korea and Japan show movements to leave the China-centric club, the China-centric club is significantly smaller than the US-centric club. This is a weakness for China, but conversely, it also serves as a cause for promoting China's technological self-reliance. Thus, the technology sector is the forefront where new boundary-setting is sharply revealed.

Proactive Bridge-Building Nation and Risk Management

So far, we have examined the nature of changes in the world order and the direction of future world order changes based on this. What national strategy should South Korea pursue to survive and realize its national interests amidst high uncertainty? The keyword that runs through South Korea's national strategy in an era of uncertainty is risk management. The pursuit of national interest is, of course, important even in an era of uncertainty. However, the method of pursuing national interest needs to be different from normal times. It is necessary to combine various strategies and means rather than relying on a single strategic tool.

Based on this awareness, our research team has condensed the following national strategies. First, aiming to be a proactive bridge-building nation. South Korea needs to take the lead in maintaining and strengthening solidarity among countries within clubs, while striving to prevent the escalation of competition and conflict between clubs. To this end, South Korea needs to secure a position that leads club connectivity and intra-club connectivity. The APEC Summit held in Gyeongju in early November showed South Korea's potential as a bridge-building nation.

Becoming a bridge-building nation requires collective power and agenda-setting capabilities. Collective power is the ability to provide a forum where many countries in the world can gather and discuss, even if their interests may conflict. At this APEC, South Korea provided a venue for a direct meeting between US President Trump and Chinese President Xi Jinping, the parties to the strategic competition, for the first time in six years. Both leaders also used APEC as an opportunity to move closer to a bilateral meeting.

Collective power is more effective when combined with agenda-setting capabilities. South Korea played a leading role in setting AI cooperation and responding to demographic changes as key agenda items at this APEC Summit. As a result, the AI Initiative was adopted, which is the first formalized joint vision for AI in APEC and a summit-level meeting in which both the US and China, who are fiercely competing, participated. Agenda-setting capability, in this way, presupposes knowledge power that understands the complexity of issues and identifies common ground for cooperation. Second, the reorganization of the world order signifies the arrival of an era of adjustment that requires changing what has been taken for granted.

Adjustment ultimately boils down to the question of who will bear the cost of adjustment. The Trump administration argues that it is time for allies to bear the costs, as they have benefited while the US has paid enormous costs to maintain the world order and the security of its allies. From the US perspective, this is a delayed adjustment. Next, it is important to note that negotiations during the Trump administration may not be final or conclusive. Even if a short-term agreement is reached, if the original goal of resolving trade imbalances is not achieved and the revival of US manufacturing does not occur, we must be prepared for the possibility that the Trump administration may demand new negotiations.

Third, as the securitization of the economy and the economization of security proceed simultaneously, risk management has become a core task. The US perceives the Korea-US relationship in terms of security, geopolitics, competition, and fairness. In terms of security, the Korea-US alliance is likely to evolve into a structure where South Korea takes charge of deterrence and defense against North Korea, and the US focuses on containing China. South Korea must focus on expanding its independent deterrence capabilities while establishing safety nets for damage minimization and crisis management. Furthermore, considering that the US is engaged in geopolitical competition with China, South Korea needs to upgrade cooperation in key industrial sectors such as semiconductors, batteries, and shipbuilding to cooperation in terms of economic security.

In terms of fairness, the US is likely to impose reciprocal tariffs on South Korea without exception and continuously demand increased investment, and we need to prepare for such situations. Fourth, South Korea faces a dual burden of high economic interdependence with the US and significant economic interdependence with China. South Korea needs to employ a complex strategy that combines various strategies rather than relying on a single strategy. This is also a way to implement the risk management proposed above. Specifically, South Korea must maintain a key position within the US-centric security cluster while strengthening its own capabilities and enhancing the originality of its strategies.

Complex Strategy for Securing AI Sovereignty

Furthermore, South Korea requires a complex strategy that systematizes cooperation with the US while not provoking China. To this end, we must pursue cooperation that strengthens cooperation with the US with like-minded countries such as the EU, Japan, and Australia, while adjusting the level of response to China. The strategy for new boundary-setting can also be applied to the "Soaring AI" strategy, which our government is pursuing at the national strategy level. The world is fragmenting. However, there are opportunities even in a fragmented environment. Our goal is practical and sustainable AI sovereignty.

The solution lies in two strategies: selection and concentration. In core security areas such as defense, public services, electricity, and telecommunications networks, we must pursue self-reliance in core AI technologies, and in other general industries, we must pursue open-source ecosystems and private sector cooperation to achieve both speed and practicality in AI innovation. Specifically, South Korea needs to quickly implement applied models in various fields based on US open-source AI, and take advantage of US efforts to build AI infrastructure, such as the Stargate project. South Korea must also lead efforts to create a responsible AI order with countries that share our values through open alliances. This is the complex strategy that can manage the risks of a changing era and secure practical AI sovereignty.

Fifth, to effectively implement a complex strategy for risk management, domestic preparation is necessary. We must establish governance based on the "just-in-case" paradigm to prepare for unforeseen circumstances. In the process of new boundary-setting, unexpected emergencies can occur constantly, making agile and resilient domestic governance essential. To this end, it is necessary to organically combine the expertise of individual ministries with the coordination capabilities of the Presidential Office and expand public-private cooperation. This concludes my presentation. Thank you for listening.

Yes. Professor Lee Seung-joo emphasized that South Korea must secure the position of a proactive bridge-building nation. To achieve this, strong agenda-setting ability and execution power from the government must be provided above all else. Yes, that is correct.

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