[Global NK Commentary] The Biden Administration's Economic Security Policies and ROK-U.S. Relations

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Since President Trump took office in 2017 advocating "America First," techno-nationalism/digital protectionism, which prioritizes geopolitics over economic efficiency, has emerged. In response to the COVID-19 crisis and global supply chain disruptions since 2020, the Biden administration is pursuing import substitution for advanced products, including semiconductors, telecommunications equipment, rare earths, batteries, and pharmaceuticals. With energy and food also becoming security issues due to the Russia-Ukraine war in 2022, decoupling between the U.S. and China has become an irreversible trend.

The Biden administration's economic security strategy has three characteristics. First, the U.S. is utilizing technologies in which it holds a clear advantage over China as a means of economic security. To block China's pursuit, the U.S. is strengthening controls on advanced science and technology that can alter the structure of strategic competition. The Departments of State, Treasury, Commerce, Defense, and Energy have implemented various sanctions, including export controls, import restrictions, investment bans, and suspension of personnel exchanges, on semiconductors, 5G telecommunications, artificial intelligence (AI), electric vehicles (EVs), and battery industries. Simultaneously, the U.S. is pushing industrial policies to increase domestic production of semiconductors and EVs and batteries through the "CHIPS and Science Act" and the "Inflation Reduction Act," respectively.

Second, because it is impossible to build independent supply chains domestically in a short period, the Biden administration is promoting not only reshoring to encourage the return of domestic companies but also ally/friend-shoring, which strengthens cooperation with allies, partner countries, and like-minded countries. Currently, the U.S. is conducting negotiations with Europe through the Trade and Technology Council (TTC), with Asia through the Indo-Pacific Economic Framework (IPEF), and with Latin America through the Americas Partnership for Economic Prosperity (APEP).

Third, the U.S. is approaching advanced science and technology related to economic security from a normative perspective. It is projecting values of freedom, democracy, and trust onto science and technology to counter the growing threats of illiberalism/authoritarianism in the digital economy and cyberspace. If the normativization of science and technology ultimately progresses, the digital economy and cyberspace could be divided into a democratic camp centered around the U.S. and an authoritarian camp centered around China and Russia.

The Biden administration's economic security strategy is having a profound impact on ROK-U.S. economic relations. Following the trade war, South Korea's economic diplomacy has shifted towards the U.S., a military ally, rather than China, its largest trading partner. First, South Korea has developed a decades-long military alliance with the U.S. Second, South Korea and the U.S. share core values and norms of democracy and a free-market economy. Finally, negative public opinion towards China has surged since the THAAD incident in 2017. For these reasons, despite China's objections, South Korea joined the IPEF and the CHIP 4 Alliance as a founding member.

However, South Korea's support for the U.S. is not unconditional. The U.S. "CHIPS and Science Act" and "Inflation Reduction Act" present both opportunities and crises for South Korea's semiconductor, battery, and EV industries. In the long term, Korean companies can benefit from these laws as they aim to block Chinese companies' technological advancement. However, in the short term, the market share and profitability of Korean companies are likely to decline in both the U.S. and China. If they have to scale back or withdraw from business in China, which has emerged as the world's largest consumer market, their sales will decrease unless a market emerges to replace China. Furthermore, because South Korea cannot immediately reduce its dependence on China to the level desired by the U.S. government, Korean companies will not be eligible for U.S. government subsidies for the time being.

The challenges faced by Korean companies in the U.S. vary by industry. The positions of South Korea and the U.S. on the CHIP 4 Alliance, which is reorganizing the semiconductor supply chain, are fundamentally different. The U.S. needs to attract foreign companies to its shores to increase domestic semiconductor production. As part of ally/friend-shoring, Samsung is building a foundry plant in Texas capable of mass-producing cutting-edge semiconductors. In contrast, South Korea cannot afford to neglect semiconductor production in China, its largest export market. However, due to U.S. sanctions against China, Korean companies are in a situation where they cannot freely replace existing equipment, let alone expand their production facilities in China. Although the U.S. has granted a one-year waiver, if these sanctions are prolonged, Samsung Electronics and SK Hynix may have to withdraw from China. Given the recent simultaneous collapse in demand and prices for memory semiconductors, their main products, these two companies have limited room to tolerate profitability deterioration resulting from abandoning the Chinese market.

There are also significant differences of opinion between South Korea and the U.S. in the EV battery industry. Korean battery companies LG Energy Solution, Samsung SDI, and SK On are collaborating with the three major U.S. automakers, GM, Ford, and Stellantis, to build battery plants in various U.S. states. Hyundai Motor and Kia Motors have also broken ground on EV production plants in Georgia. Despite these large-scale investments, these two automakers will not receive tax credits under the IRA. This is because EV battery subsidies are only provided if a certain percentage of materials are mined or processed in the U.S. or USMCA member countries, or recycled in North America. Currently, Korean electric vehicle battery suppliers' dependence on Chinese-made cathode materials, separators, and precursors stands at 72.5%, 54.8%, and over 90%, respectively. If this issue is not resolved quickly, the sales and market share of Korean battery and EV companies operating in the U.S. will decline.

Attention should also be paid to the possibility that U.S. sanctions against China may be applied discriminatorily to Korean and American companies. While U.S. flagship companies like Apple and Tesla are expanding or maintaining their businesses in China, Korean companies like Samsung Electronics and SK Hynix are being forced to withdraw. If this situation is not resolved quickly, support for the IPEF and the CHIP 4 Alliance will likely deteriorate. To avoid negatively impacting the ROK-U.S. alliance, the U.S. must urgently provide appropriate and sufficient compensation to Korean companies for their investments in the U.S.

Finally, it is crucial to ensure that economic friction between South Korea and the U.S. does not spill over into the ROK-U.S. military alliance. With North Korea's continued missile launch tests, bilateral military and security cooperation for extended deterrence is more important than ever. Therefore, our government should seek alternatives to expand common ground between the two countries, rather than pressuring the U.S. government for concessions, so that differences in economic security do not negatively affect the overall bilateral relationship. Only by doing so can we preemptively block any opportunities for North Korea, as well as China, to exploit conflicts between South Korea and the U.S. ■

※ This commentary is the Korean translation of "The Biden Administration's Economic Security Policies and ROK-U.S. Relations."

■ Lee Wang-hui_Professor of Political Science and International Relations at Ajou University. He holds a Ph.D. in International Politics from the London School of Economics and Political Science, UK. He advises the Ministry of Foreign Affairs, the Ministry of Trade, Industry and Energy, and the Ministry of Science and ICT on economic security issues. His research topics include East Asian political economy and U.S.-China strategic competition. His major works include "Prospects for China's Multilateral Diplomacy in the Biden Era," "Global Leading Powers and Just Transition: National Policy Direction for Korea in the Post-COVID Era" (co-authored), "Great Power Competition and the Response of Related Countries: Historical Cases and Implications" (co-authored), "Structural Changes in External Conditions and Response Strategies in the Era of U.S.-China Conflict" (co-authored), and "Geopolitical Risks and Economic Security in the Era of U.S.-China Strategic Competition" (co-authored).