Surviving the trade war

Columns

Published: 25 Jun. 2019, 19:36

Surviving the trade war

Nam Jeong-ho
The author is an editorial writer of the JoongAng Ilbo.

Korea is being shoved around, caught in the middle of the technology Cold War between the United States and China over Huawei Technologies. Its ally may limit intelligence sharing if Seoul continues to rely on wireless equipment from the Chinese company, which has been blacklisted by Washington on security grounds. Beijing threatened Seoul of “dire consequences” if any discriminatory policies are implemented targeting one of its most valuable companies. Korean IT companies can only hope U.S. President Donald Trump and Chinese President Xi Jinping come to a sensible settlement when they meet in Osaka, Japan, later this week for the Group of 20 (G-20) Summit.

The conflict over Huawei is not simply a trade dispute between the two superpowers, as it represents a war of hegemony between a traditional power and a rising power. The technology war will likely continue against any companies posing threats to the U.S. hegemony in technology. The U.S. Commerce Department last Friday added five more Chinese names in the so-called Entity List — supercomputer company Sugon and its three affiliates, as well as the Wuxi Jiangnan Institute of Computer Technology — which restricts U.S. suppliers like Intel and Advanced Micro Devices from business deals with them on concerns of damage to “U.S. national security and foreign policy interests.” Under the guise of security, the move is aimed at crippling Chinese IT capabilities and value chain by cutting off their access to the United States and elsewhere around the globe.

Korea relies on the United States for defense and China for trade. Both are crucial to its viability. There is no immediate solution except waiting out the storm. Despite U.S. pressure, only Japan, Australia, New Zealand and Canada have backed its anti-Huawei campaign. Emerging markets like Africa and Southeast Asia as well as European states, including Germany and Italy, have ignored the call. Even the United Kingdom cannot make up its mind. Seoul’s best option to buy time by saying it will stop using Huawei products if there is undeniable proof of information theft.

In the longer run, Korea must reduce its security and trade reliance on the United States and China. Korea should have fixed its over-reliance on trade with China long ago. For instance, in 2000, Beijing struck back in a big way by banning cellular phone and polyethylene imports from Korea when Seoul raised tariffs on Chinese garlic.

Nevertheless, Korea’s reliance on China for exports only went up. In 2000, China was Korea’s third largest export market, accounting for 10.7 percent of Korea’s exports, following Japan (11.9 percent) and the United States (21.8 percent). But over the years, China became top export destination for Korea. Last year, it accounted for a whopping 26.8 percent of Korea’s exports, double the U.S. share of 12.0 percent and triple Vietnam’s share of 8.0 percent.

U.S. President Donald Trump shakes hands with Chinese President Xi Jinping at the end of a press conference at the Great Hall of the People in Beijing on November 9, 2017. Their professed friendship was put to the test as they met for tough talks on trade and North Korea. [AFP/YONHAP]

It is also imperative for Korea to diversify its sources for sensitive items, such as rare earths. Korea bought 57 percent of its rare earths on China last year. Korea will be hit hard if China leverages rare earths. Seoul could benchmark Tokyo. Japan faced a rare earth ban from China amid a territorial dispute in 2010. Tokyo adopted a new rare earth policy and sought new sources for the materials. The country was able to manage without Chinese rare earth elements two years later.

At the same time, Seoul must reassess its alliance with Washington. The bilateral security alliance cannot be genuine if Washington goes on threatening not to share military intelligence with its ally to force it to stop using Huawei products. In an unbalanced relationship, as the stronger can make overbearing demands on the weaker, the latter inevitably has to comply. To get out of the entanglement, Korea should develop its bilateral relations. It must achieve more sovereignty and respect from an ally. Seoul can gain such recognition through stronger military sovereignty. In Sweden earlier this month, President Moon Jae-in said what ensures peace between the two Koreas is dialogue, not military power. But military strength is essential.

JoongAng Ilbo, June 25, Page 30