Ally or competitor?

Choi Ji-young

The author is the economic news editor at the JoongAng Ilbo.

When U.S. President Joe Biden visited Korea for his first summit with President Yoon Suk-yeol in May, the feeling surrounding economic relations between the two allies was positive. On May 20, the first day of Biden’s trip, he met Samsung Electronics Vice Chairman Lee Jae-yong and toured the company’s massive semiconductor-production facilities in Pyeongtaek. On May 22, the last day of his trip, Biden met Hyundai Motor Group Chairman Euisun Chung. The Yoon administration promoted the events with great fanfare, saying Korean companies became major players in the U.S. administration’s policy focusing on economic security.

But Korea’s jubilation did not last long. The Korean government and corporate sector were shocked after the passage of the CHIPS and Science Act and the Inflation Reduction Act (IRA) in July and August and the signing of an executive order entitled “Advancing Biotechnology and Biomanufacturing Innovation for Sustainable, Safe and Secure American Bioeconomy” last week. The agile developments in the U.S. frustrated the Korean government and companies, as they saw the U.S. president repeatedly express his appreciation for Korea’s investment in America during his visit to Seoul.

Local industry insiders were convinced that Korea will play a key part in replacing China in global supply chains. But it did not pan out that way: The United States not only wants to exclude China from the new global supply networks, but also desires to restore America’s competitiveness in manufacturing.

As it turned out, the U.S. zeroed in on the fields where Korean companies have strength or make huge investments — such as chips, electric vehicles (EVs) and batteries and bioengineering. They are cash cows for major economies, including Korea and the U.S., at least for a couple of decades. For American companies, Korean companies are their rivals.

It was evident that the Biden administration will take steps to create new global supply chains centered around the U.S., as repeatedly hinted at during his campaign, inauguration speech and other addresses Biden has made since the election. Korea Inc.’s reaction was remarkably swift. Hyundai Motor hurriedly came up with a plan to build a second factory for EVs in Georgia, Samsung hastily devised a scheme to construct its second chipmaking plant in Talyor, Texas, and SK rushed to invest in car battery manufacturing outposts in the U.S. But regrettably, no one expected Congress to approve such unfair bills so quickly.

Worse still, no one in the Foreign Ministry can get any information on what will be the next executive order by the U.S. president to constrain Korean companies’ business activities in America and beyond. A diplomatic official confessed that the ministry could not do anything because the IRA was passed so speedily. But his confession, while candid, does not pardon the Yoon administration.

The Korean government promised to open a channel for “economic security dialogue” between the presidential office and the White House to brace for a new era of economic security. That was the right direction. But that was it. The presidential office was not professional nor did it have time to prepare for the sudden developments in America.

The Yoon administration must recognize the cold reality in which the U.S. government only welcomes Korean investment when it brings tangible benefits to Americans. Washington made it clear that it will provide subsidies to allies if they can replace China — but that it will support U.S. companies if the allies pose a threat to them.

Under such circumstances, Seoul keeps saying that Washington considers the problem serious. But that’s nothing but torture by hope. Seoul says it would “consider filing a complaint with the WTO” if the unfair subsidies are not changed. But that’s just rhetoric, as it takes several years for the WTO dispute settlement process to end. Before any ruling is delivered, Korean factories will have been built in the U.S. and will be eligible for U.S. subsidies. The U.S. government reportedly reassured Seoul that the IRA is not that biased against foreign companies.

The Korean government could plead for help, asking, “How can you do this to your ally after stressing our friendship so much?” But this logic, based on alliances, will not work. Instead, it will be more persuasive if Seoul can convince Washington of the apparent damage to U.S. consumers if they cannot enjoy the high price-performance ratio of Korean EVs.

Korean companies are forced to survive on their own. They will certainly try to collect more information in Washington for lobbying than before, but it is questionable if it will bring about tangible results. Sadly, though, I have never heard of any Korean lawmakers who have tried to solve the problem based on their personal connections with their counterparts in Congress.