Watch the stray bullet!

Park Won-seog
The author is a professor at Chung-Ang University Law School.

It seems that the U.S. strategy of “taming China” has no end in sight. Recently, the U.S. Trade Representative announced it will soon increase the tariff on electric vehicles from China to 100 percent, quadrupling from the current 25 percent. This is 40 times higher than the 2.5-percent tariff imposed on cars produced by other World Trade Organization member countries. The United States also announced it will slap a 25-percent tariff on general battery components and secondary batteries for electric vehicles from China.

We can’t help but wonder if these U.S. sanctions on China are the “end of the beginning” or the “beginning of the end.” Whatever the case, it is not over yet, and will unlikely end anytime soon. The U.S. action came after State Secretary Antony Blinken paid a visit to Chinese President Xi Jinping in Beijing in April. China must have been offended. That suggests the strategic distrust between the two countries is growing and the rift between them is set to deepen further.

Washington’s move is a response to the more than 400 trillion won ($290.7 billion) annual trade gap between China and the United States, which is largely due to the enormous subsidies Beijing has injected into state-owned and private enterprises. The U.S. measure is also a blow to China’s unfair practices. Until now, China has been luring foreign companies with cutting-edge industrial technologies with bait. In many cases, Beijing demanded joint ventures or equity participation, took control of them, and stole the advanced technologies.

Former U.S. President Donald Trump, an entrepreneur himself with an instinct for avoiding losses, has a strong aversion to socialist dictatorships. When he was in office, he established institutional mechanisms to prevent China from disrupting the global high-tech ecosystem with sophisticated semiconductors, supercomputers, bio products and technologies developed by the United States. The U.S. government introduced the Export Control Reform Act in 2018 and the Export Administration Regulations in 2020.

President Joe Biden has gone a step further than the Trump administration. In August 2022, the United States enacted the Inflation Reduction Act, which promotes the complete domestic production of environmentally friendly electric vehicles and batteries, offering tax credits for vehicles and batteries that meet the requirements. However, China-related companies were completely excluded from the benefit under the somewhat ambiguous designation of “Foreign Entity of Concern (FEOC).”

To assuage worries, the U.S. Department of Energy issued the final interpretation guidance on FEOCs in early May. According to the guidance, supply chain entities are barred from U.S. access if they are more than 25 percent owned by, controlled by, or subject to the jurisdiction or direction of former and current high-ranking members of China’s central and local governments, Communist Party and military as well as their immediate family members, including siblings, and their spouses’ immediate family members and siblings.

Under the “small yard, high fence” policy, as insisted on by White House National Security Advisor Jake Sullivan, meticulous control mechanisms were created.

Coincidently, electric vehicles, batteries and advanced semiconductors, of which the United States controls exports and imports, are currently the most lucrative businesses for Korean companies. But they rely on China or foreign companies that China invests in for many battery components and most key minerals. Therefore, the U.S. action has become a high fence our companies will have to overcome eventually.

It is nearly impossible for private Korean companies to know if a supply chain company in China, Africa, South America or Southeast Asia is owned by, controlled by, or subject to the jurisdiction or direction of a distant relative of a senior Chinese official. Fortunately, our economic security authorities and related industries have been maintaining a close consultative body so far. Preventive information-sharing channels with the U.S. Department of Energy need to be strengthened to protect Korean companies from unexpected problems.

It is also important to note the U.S. Treasury Department’s interpretive guidance on the scope of battery materials. The definition of “extraction” of key minerals for batteries includes “equipment.” That means Chinese-made equipment must not be used for mining. The guidance should be carefully studied for a possible broadening of the application scope in order to avoid unnecessary harms.

Translation by the Korea JoongAng Daily staff.