State visit consolidates economic vision for alliance

By Troy Stangarone

In recent years, the approach to joint statements and the balance of issues has changed at U.S.-Korea summits. The joint statements became more detailed. Economic issues were given more weight in the relationship and North Korea became less prominent. While North Korea's resumption of weapons development since last year pushed extended deterrence to the top of the April 2023 Yoon-Biden summit agenda, cooperation on economic issues related to climate change, technology and space remained prominent and the summit consolidated an economic vision for the future of the relationship.

That vision was articulated by President Yoon Suk Yeol, who called for the relationship to "leap into a new phase" to tackle complex issues and to move towards increased cooperation on innovative technologies. This vision is perhaps best encapsulated by U.S.-Korea cooperation on climate change. Climate change represents a global challenge that cannot be solved by any nation alone. Over the last three years has become an important aspect of cooperation in the U.S.-Korea relationship.

In the Biden-Yoon joint statement, climate change, along with clean technology, is the only issue that touches on the alliance's vision for cooperation globally, regionally and bilaterally. Across those three levels of cooperation, the statement envisions the United States and Korea working together to increase the share of electricity in power generation, to develop new technologies to make hydrogen and other clean technologies commercially viable, to strengthen clean energy ecosystems and to support countries' ability to prepare for and adapt to climate change.

The summit also produced the creation of a Next Generation Critical and Emerging Technologies Dialogue headed up by the two allies' respective national security advisors. With national security issues becoming increasingly intertwined with economic issues, the dialogue will provide a platform for the two countries to work through these difficult issues on technologies ranging from biotechnology, batteries and semiconductors to future-oriented quantum technologies. The United States and Korea are looking to deepen their economic partnership in all of these areas.

However, the most interesting development may be in the area of space cooperation. While the summit officially brought space, along with cybersecurity, into the alliance, it also produced developments on commercial space cooperation. The joint statement calls for collaboration on the development of commercial space stations, something NASA only began to pursue in late 2021 and potentially puts Korea and the United States at the forefront of the commercialization of space.

Despite progress on these issues and others, the economic outcomes from the summit may have disappointed some for much of the past year, the Inflation Reduction Act and CHIPS and Sciences Act have overshadowed U.S.-Korea relations and issues related to each remain to be resolved. However, much of the work that could have been done in the short term on these two issues was accomplished prior to the summit.

The U.S. Treasury Department took up Korean suggestions to allow leased EVs to be classified as commercial vehicles in regard to the Inflation Reduction Act. It also took up Korean recommendations that allow cathodes and anodes produced in Korea for EV batteries to qualify under the legislation's provisions. In the absence of amending the law to address the assembly issue hindering Hyundai and Kia, the Biden administration had taken the steps it legally could.

It is also important to note that in the case of the Inflation Reduction Act, Korea as a whole is one of the big winners from the legislation. Goldman Sachs estimates that Korean battery firms will account for 55 percent of the U.S. battery market by 2025, while the United States will become one of the top markets for EV batteries. Korea will also benefit from the solar industry sector. Hanwha Q Cells estimates it will receive $875 million a year in tax credits for the production of solar panels in the United States. By 2025, estimates suggest Hanwha Q Cells will account for 30 percent of all solar panel production in the United States.

Similar to the case with EVs, the Commerce Department in advance of the summit had taken up recommendations to provide some flexibility under the guardrails of the CHIPS Act to allow for the expansion of Korean semiconductor facilities in China.

One opportunity the Biden-Yoon summit missed was to remove the national security tariffs the United States placed on Korean steel during the Trump administration. The Biden administration has already reached new agreements with the EU, the United Kingdom and Japan. Revising the terms under which Korea can export steel to the United States should have been an easy deliverable.

The United States and Korea have now consolidated an economic vision for the alliance that began to take shape in 2021. It is built around deeper cooperation on climate change, technology and space with a focus on EVs, EV batteries and semiconductors. However, as technologies ranging from quantum computing to artificial develop, these new technologies will increasingly become the focus of what President Yoon has called a technology alliance.

Troy Stangarone (ts@keia.org) is the senior director of congressional affairs and trade at the Korea Economic Institute.