[New Year's Special Commentary Series] ⑧ Prospects for US-China Tech Competition in 2023 and South Korea's Tech Diplomacy Strategy

1. Review of US-China Tech Competition in 2022

As advanced technologies such as semiconductors, artificial intelligence, and quantum computing have become central to the US-China conflict, technological geopolitics has become a major foundation shaping and guiding global politics. The conflict between the two countries, with China challenging US technological superiority and the US containing China, continues with tensions so high that it is called a new tech Cold War, driving structural changes that affect not only US-China relations but the global political economy as a whole. Amidst the rapid and deep structural changes in the global political economy, overlaid with major issues such as the deepening of the Fourth Industrial Revolution and the digital economy, the spread of COVID-19, and the unfolding US-China hegemonic competition, technology is increasingly recognized as a foundation for national security and prosperity, intensifying the technological competition among major countries, including the US and China. International technological competition and cooperation are no longer approached from a market mechanism perspective but from a national security viewpoint, with technology being established as the most crucial element supporting military and economic security.

The US-China tech conflict began in earnest with the Trump administration's export controls on advanced technologies to China and has expanded in more sophisticated ways under the Biden administration. Looking back at 2022, we can confirm that from the beginning to the end of the year, the US consistently expanded sanctions against Chinese advanced technology companies and research institutes in the form of precise strikes on sectors such as semiconductors, quantum computing, aviation, and artificial intelligence. In February 2022, the US Department of Commerce added 33 Chinese companies, research institutes, and universities to the Unverified List, restricting transactions with them. In August, it added seven Chinese companies and research institutes to the Entity List, and in October, it further tightened export controls on advanced semiconductor and computer manufacturing sectors, expanding the scope of the ban on exports of advanced semiconductor chips and equipment using US technology to China. On the other hand, the US Congress passed the CHIPS and Science Act and the Inflation Reduction Act, which support advanced semiconductor and green manufacturing sectors in the US and involve massive investments in technological innovation, signaling a move to support the advanced manufacturing sector, where the US perceives itself to be most vulnerable. Additionally, the US held the second ministerial meeting of the Trade and Technology Council (TTC) with the EU, agreeing on measures to stabilize semiconductor supply chains and expand cooperation on export controls against Russia. It has also led the 'Chip 4' semiconductor cooperation network involving South Korea, Japan, and Taiwan, and launched the Indo-Pacific Economic Framework (IPEF), expanding technological cooperation networks to counter China's technological rise.

While China has officially condemned the expansion of US export controls on advanced technologies, it has refrained from tit-for-tat responses. Instead, it has focused on technological self-reliance and strengthening its digital Silk Road in line with the Belt and Road Initiative. China has been confronting the US and European countries with the norm of internet sovereignty, countering the US concept of internet freedom, and striving to form a separate digital economic bloc based on this. The Chinese government, through documents from the 20th Party Congress, has emphasized that science and technology are the primary productive forces, talent is the primary resource, and innovation is the primary driving force, advocating for a strategy of national rejuvenation through science and education, known as 'Kyo-gyo-heung-guk' (科教兴国).

As the US's firm resolve and policies to maintain its lead in advanced technologies and counter China's challenges clash with China's accelerated efforts toward technological self-reliance and its massive investments in expanding domestic and international digital infrastructure, restrictions on the free cross-border movement of capital, talent, and technology have begun to emerge within the open global innovation system that has been in place for decades. Throughout 2022, as the strategic technology conflict between the US and China served as the fundamental framework for US-China relations and the global political economy, the security perspective on technology became more entrenched, the scope of regulations on security-related technologies gradually expanded, partial decoupling occurred in strategic technology sectors, and competition intensified to lead the digital economy. Due to the US's offensive, China has been forced to revise its ambitious plans in certain advanced sectors, including semiconductors; however, this has only strengthened China's resolve for technological advancement, escalating the conflict and tensions between the two countries over advanced technologies.

2. Prospects for US-China Tech Competition in 2023

The US-China tech competition will continue in 2023, and a starting point for forecasting could be to predict whether the tone of competition will slightly ease or intensify. Currently, the US holds the reins determining the trajectory of US-China tech competition. The US has long criticized China's intellectual property theft and industrial policies. The shift in the US's perception of China, driven by structural changes in the global political economy such as China's rise and the US's response to China's technological advancement, has led to changes in the US's approach and level of response. With the announcement of 'Made in China 2025' and the accumulation of trade deficits with China coinciding with the Trump administration's 'America First' policy, China's technological rise began to be perceived as a significant threat, and the US framed it as economic aggression against its own country. Subsequently, the tone of the US-China tech conflict has been set based on a series of containment measures introduced by the US.

Therefore, it is crucial to examine the direction of the various policies currently implemented by the US in 2023 to forecast the year. First, we must consider whether the US will expand its containment measures against China in the new year as it did in 2022, and to what extent this is possible. Despite the frustration and delays in China's semiconductor ambitions, the US government's perception of the threat posed by China's advanced technologies has not diminished. The perception of the threat in advanced technology sectors is likely to intensify over time, and the range of technologies China challenges is likely to expand. This will serve as a continuous driving force for the US to expand export, investment, and personnel controls on China's advanced technologies. With the election of Kevin McCarthy, a hardliner on China, as the new Speaker of the House, and the intensifying inter-party competition for the upcoming presidential election, it appears likely that hardline containment policies against China will generally prevail.

However, on the other hand, arguments for a more cautious approach to Chinese regulations from the perspective of long-term US national interest are also being raised, which is noteworthy. US export controls on China have had a boomerang effect, imposing considerable burdens on US companies heavily reliant on the Chinese market and on the US economy. While the voices of hardliners against China are currently loud within the US, and the damage to US companies and the negative impact on US technological innovation capacity due to Chinese regulations are not yet officially on the discourse agenda, the cumulative problems arising from restrictions on exports, investments, and personnel exchanges with China over the past several years need to be observed to see how they will manifest. These proponents argue that US regulations on China should not become general rules but should be applied exceptionally and restrictively, and they view the current administration's expansion of regulations critically. Furthermore, with an expected economic downturn in the global and US economies, the US government may focus more on domestic economic stimulus, making strong containment of China a burden. In summary, while overall containment of China will intensify, efforts will be made to carefully refine regulations and seek a balance between regulation and innovation, recognizing the short-term and long-term negative impacts of these measures on US companies, the economy, and innovation activities.

As the US solidifies its plans for supporting advanced manufacturing through the CHIPS and Science Act and the Inflation Reduction Act, there has been a significant increase in advanced manufacturing investments in the US by both US and foreign companies. Korean companies such as Samsung and SK, as well as Taiwan's TSMC, Intel and Micron from the US, are all investing in advanced manufacturing in the US and expanding their manufacturing facilities, expecting support from the US government. In 2023, discussions will likely become more concrete on how to allocate and utilize the subsidies. With the US Congress playing a crucial role in decisions regarding the disbursement of funds, key points to watch will be how the US Congress and government balance support across different industrial sectors and between foreign and domestic companies, and to what extent the subsidies will stimulate the overall market and technological innovation. Despite massive government support, there are many barriers that make it difficult to be optimistic about the US regaining competitiveness in advanced manufacturing, a sector it has outsourced for decades. As the patterns of support for advanced manufacturing begin to emerge, we will gain a faint glimpse into how the US will position its domestic and foreign companies in advanced manufacturing, and what the actual outcomes of supporting advanced manufacturing will be. In the long term, securing competitiveness in advanced manufacturing will be a crucial stepping stone for the US to maintain its lead in the tech competition with China, making the development and effects of government support a matter of keen interest.

Whether the US can continue close cooperation with European and Asian countries to contain Chinese technology is also an important aspect of forecasting US-China tech competition. The US has been investing considerable effort in building technological cooperation networks to contain China, based on universal values of liberal democracy and its own overwhelming technological prowess. It has developed various multilateral technological cooperation platforms, including bilateral technological cooperation, the EU-US Trade and Technology Council (TTC), Chip 4, the Indo-Pacific Economic Framework (IPEF), AUKUS, and QUAD. Given that China provides momentum for global economic growth and a market, choosing to strengthen technological cooperation biased towards the US imposes a burden on many countries and companies. While most countries and companies are bearing a certain degree of burden, subtle cracks are also being detected. The cooperation of ASML, a Dutch semiconductor equipment company, was crucial for delaying China's semiconductor ambitions, but recently ASML has openly expressed its criticism of US export controls on China and its intention to increase exports to China. At the end of last year, German Chancellor Scholz visited Beijing with leading German companies such as Volkswagen, BMW, BASF, Bayer, and Deutsche Bank, attracting significant attention. While a single visit to China does not shake the alliance with the US, Chancellor Scholz mentioned the importance of technological cooperation with China during the visit and stated that 'we will reduce unilateral dependence on one country through wise diversification,' revealing the concerns held by many countries. In 2023, while the US-led cooperation network will be maintained, tensions will manifest in more diverse forms at the national and corporate levels between the US's centripetal force in drawing in allies to support China containment and the centrifugal force of allies seeking to manage their relationship with China based on national interests.

Furthermore, the US will continue its efforts to conduct multilateral cooperation frameworks for containing China's advanced technologies. For example, the US believes that the Wassenaar Arrangement, a multilateral regime for strategic export controls involving 42 countries, is inefficient in controlling technology to China because decisions are made by unanimous consent, and Russia, which is friendly to China, opposes such controls. The US's efforts to create a new technology control regime by uniting allies, excluding Russia, will materialize, further intensifying the bloc formation caused by US-China tech competition.

China, which is defensively responding to the US's offensive in advanced technologies, publicly criticizes the US but refrains from actions that would provoke it, while further strengthening its efforts toward technological self-reliance. China is particularly focusing on identifying specific technologies needed for self-reliance, such as 'chokehold technologies' (卡脖子技术) that the US is tightening its grip on, and 'bottleneck technologies' (短板技术) representing technological gaps, and is advancing towards the goal of self-reliance in technology and industrial ecosystems by intensively supporting these areas. Attention is focused on how Xi Jinping's third term and the lifting of COVID-19 lockdowns after the 20th Party Congress will impact the growth of China's digital economy and scientific and technological innovation. In recent years, China's government has intensified its control over leading IT companies that have driven the growth of China's digital economy. The Chinese government is likely to ease regulations on private companies to revitalize the market in response to the economic downturn. However, with the strengthening of Xi Jinping and the Communist Party's power, it faces the difficult task of finding an appropriate balance that can coexist with the spread of a social and cultural environment conducive to market revitalization and technological innovation. As China continues its attempts to expand digital infrastructure abroad led by China, in line with the Belt and Road Initiative, and to form its own digital economic bloc, it remains to be seen how China will manage potential friction with partner countries in this process and respond to the intensifying US containment.

In 2023, the structural trends driving US-China tech competition will continue, and the conflict and tensions surrounding advanced technologies will further intensify, with partial decoupling in strategic advanced technology sectors persisting. The bloc formation of the digital economy and competition over technological norms are also unlikely to ease. The domestic political situations in both the US and China are also tilting towards a strong confrontation. On the other hand, the degree of interdependence between the economic and innovation systems of both countries still remains at a certain level amidst the tech competition, and the technological conflict occurring on the foundation of interdependence in innovation systems is increasing innovation costs and instability for both countries. As US-China tech competition intensifies, both countries will increasingly face the need to manage and consider the domestic and external costs of decoupling and conflict.

3. South Korea's Tech Diplomacy Strategy

The US-China competition in advanced technologies is expected to intensify further for the time being, and countries worldwide are facing the situation of needing to craft strategies that intricately link security, economy, and technological norms amidst geopolitical considerations and choices. The deepening US-China tech conflict shrinks the space for simultaneous cooperation with both countries, posing a significant challenge to South Korea, which has pursued a policy of aligning with the US on security while prioritizing China on economy. On the other hand, it provides an opportunity for deeper reflection and preparation regarding the direction in which South Korea's future in the 21st century should be shaped.

There is a growing argument that South Korea should strengthen its technological cooperation with the United States while simultaneously managing and responding to the anticipated increase in risks and uncertainties from China. In particular, it is crucial to establish a clear objective of enhancing our technological innovation capabilities at the core of cooperation with the U.S. and responses to Chinese uncertainties, especially in the technology sector. We must ensure that the ongoing investments by Korean companies in advanced manufacturing within the U.S. and technological cooperation with the U.S. contribute to strengthening South Korea's technological prowess. While South Korea is one of several countries cooperating with the U.S. on technology, the U.S. is the most important partner for South Korea. The cost for South Korea to be bypassed by the U.S. is asymmetrically much greater than the cost for the U.S. to bypass South Korea. In a situation where it is difficult for us to lead the process following U.S. investments by Korean companies and various Korea-U.S. technological cooperation efforts, meticulous technological diplomacy with a long-term perspective is urgently needed to turn these into opportunities for strengthening our technological innovation capabilities. As the U.S. government's support for advanced manufacturing materializes in 2023, we must find solutions through U.S.-focused technological diplomacy regarding what technologies South Korea will exchange with the U.S., how to develop technologies where South Korea can maintain a sustained advantage, and how to position the relationship with the U.S., both a collaborator and a competitor, in the long term.

Amidst U.S.-China competition, technological cooperation with China is shrinking, and uncertainties originating from China are increasing. While continuing technological cooperation with China in non-strategic sectors and maintaining communication channels, we must also cautiously pursue technological diplomacy with China to secure our advantage against China's technological challenges as we move towards decoupling from China in strategic technology sectors. Furthermore, technological diplomacy that expands the scope of technological cooperation by placing greater emphasis on cooperation with the EU, India, and ASEAN countries is also required. The "Korean-style technology alliance" should not be a simple dichotomy of choosing between the U.S. and China, but rather should be built by broadly securing diverse cooperation channels at multiple levels, thereby dispersing the risks arising from intensifying U.S.-China technological competition while simultaneously focusing on strengthening South Korea's technological innovation capabilities.

During the era of U.S.-China technological competition, South Korea's technological diplomacy should unfold by presenting a compelling technological vision to the world and expanding upon it. Discussions should be activated not only on what technologies South Korea can continuously offer to the global market but also on what kind of future society we aim to choose and build based on new technologies. The "internet freedom" advocated by U.S. Big Tech companies is perceived not as a value for realizing true freedom, but as rhetoric to solidify their dominant position, and China's advocacy for "internet sovereignty" and state control over technology is also difficult to accept as universal norms. We must seek a technological vision that is more persuasive, attractive, and actionable than those put forth by the U.S. and China. As a middle power, South Korea must lead technological diplomacy by seeking, presenting, and expanding a technological vision that contributes to the realization of universal values such as democracy, prosperity, and sustainability, through dynamic competition and cooperation among its diverse constituents.

Maintaining an open and cooperative innovation ecosystem is crucial for the pursuit and realization of South Korea's technological alliances and technological vision. Over the past few decades, South Korea's technological innovation and growth have been possible within an open and free global innovation system. Future technological innovation development and economic growth in South Korea can also be sustained through dynamic competition and cooperation based on the free flow of capital, technology, and human resources within an open global innovation system. Even amidst fierce competition in cutting-edge technologies among nations, we must support competition to ensure it occurs according to open and fair rules, and actively participate in the formation of norms and rules in new technology fields such as AI, cyber, and quantum computing, thereby striving to consolidate the rule-based order. In an era of technological geopolitics where the logic of competition, exclusion, and exclusive choices is dominant, South Korea must share and expand the recognition of the importance of an inclusive and cooperative technological ecosystem. South Korea's technological diplomacy should contribute to laying the foundation for shared prosperity by supporting the maintenance and development of an inclusive and cooperative global technological innovation ecosystem where all members can prosper together.■

■ Author: Bae Young-ja_Professor of Political Science and International Relations, Konkuk University. She graduated from Seoul National University with a degree in Diplomacy and received her Ph.D. in Political Science from the University of North Carolina. Her main research areas include international political economy, political economy of foreign investment, science, technology, and international politics, the internet and international politics, and science and technology diplomacy. Her major publications include "Research on the World Politics of Science and Technology: Current Status and Prospects" (2021), "International Political Hegemony and Technological Innovation: A Case Study of US Semiconductor Technology" (2020), "The Rise of Chinese Internet Companies and Internet Sovereignty" (2018), "US-China Hegemonic Competition and Scientific and Technological Innovation" (2016), and "Science, Technology, and Public Diplomacy" (2013).

■ Responsible Editor: Park Han-soo_EAI Researcher

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