Moving toward a real chip power

Bark Tae-ho
The author, a former minister for trade, is the president of the Lee & Ko Global Commerce Institute.

The high priority of domestic production over overseas investment and international trade marks a key change to the current international commerce environment. There is a greater sense that offshore investment and imports from foreign countries are stealing domestic jobs and deepening income disparities at home. The phenomenon goes against the mainstream economic theory of prioritizing efficiency. Still, the governments of the United States and other advanced countries support their industries with generous subsidies and tax cuts and beckon local as well as foreign companies to expand production in their home turf.

The global spread of reshoring trends cannot bode well for Korea, whose economic growth relies on export revenue. Bigger economies’ courting of foreign enterprises also works unfavorably for a small economy like Korea’s. Anxiety is deepening in the country about the loss of exports and jobs due to Korean companies’ mass-scale overseas investments.

We need a new trade strategy to accommodate the changes to the global environment with our domestic conditions. The Korean economy is structured to grow on export and overseas investment due to its small domestic market. Fortunately, Korea is strong in producing strategically-important microchips and batteries and maintains supremacy in manufacturing. As a result, Korean companies are being chased by the United States, the European Union and Japan, and some companies have already made a number of big investments.

Our new trade strategy must leverage overseas investment to drive exports. It is important for our high-tech companies to source value-added materials, parts and equipment from home. Home sourcing can contribute to the growth in exports and broaden the high-tech composition of mainstay export items. When Korea becomes specialized in the production and shipment of high-tech inputs, the country can become a global hub, providing core supplies for global tech companies.

To achieve that goal, Korea should be at the forefront of vibrant research and development (R&D) activities and continue to roll out new technology. The country also needs to draw foreign entities in. Top-shelf companies from the United States, the EU, Japan, Canada and Australia must be invited here to establish R&D centers and build connections with Korean companies. The joint venture between ASML and Samsung Electronics to establish a next-generation semiconductor R&D center in Korea is a good example. Korea must make efforts like this to become the core R&D base for future technologies.

Building global competitiveness for Korea’s small and mid-sized companies should be another key factor in our new trade policy. Many are leaving China, due to its waning appeal as the world’s factory base, for better options in Southeast Asia and India. These markets offer cheaper labor and better business environments than China does.

The migration can offer opportunities for Korean small- and medium-sized enterprises (SMEs). They should build production and assembly lines in Vietnam, Indonesia and India to churn out export products that used to be produced in China. Korea has already achieved staggering growth through the production and exports of industrial products. SMEs also can ascend to the global level by joining the value chain.

We must advance the country by surviving challenges in the global trade environment with a new strategy. Since most governments are pressing on with domestic-first policy, our government also must draw up — and implement — radical support measures quickly to draw excellent global companies, support R&D, foster talent, engage SMEs in free trade agreement networks and establish a stable value chain.

Translation by the Korea JoongAng Daily staff.