Building value-based alliance with Washington
By Ahn Choong-yong
President Yoon Suk-yeol set the tone of South Korea's new economic diplomacy by declaring during his inauguration that he would “build a nation that espouses liberal democracy and ensures a thriving market economy.”
Yoon's commitment in his inaugural address on May 10 to “work together with like-minded nations that respect freedom and encourage creativity” is particularly important for Seoul to navigate turbulent economic competition in the Asia-Pacific region amid the intensifying U.S.―China rivalry.
At the ROK―U.S. summit in Seoul on May 21, the leaders of the two countries agreed to upgrade their security alliance into a global comprehensive strategic alliance. This move calls for South Korea to take a more active role on the global stage to promote the common values of democracy, the rules-based international order, freedom, sustainable growth and a fair playing field for international trade and investment.
The previous Moon Jae-in administration cautiously engaged with China, after initially saying in 2017 that Korea would share in Chinese President Xi Jinping's “Chinese dream.” South Korea's geoeconomic strategy has historically taken a dichotomous approach after China's rapid economic rise ― balancing its security alliance with the United States with its economic ties with China, its largest trading partner.
South Korea relies heavily on China to acquire key intermediate goods and essential materials such as electronic equipment, chemicals, rare earths and urea water, to complete many of its supply chains.
The long-cherished ROK―U.S. security alliance and lenient U.S. market access have greatly benefited South Korea's economic rise. New ROK―U.S. relations now ensure a “high-tech alliance” that is essential for South Korea to maintain its international competitiveness.
The alliance secures trade for cutting-edge semiconductors, electric vehicles and batteries. The ongoing pandemic and war in Ukraine have shown that national security is directly linked to economic security. Indeed, the resilience of interconnected supply chains is ultimately secured through the removal of supply-side bottlenecks.
As the first concrete step toward a comprehensive ROK―U.S. alliance, Yoon declared South Korea's role in the U.S.-initiated Indo―Pacific Economic Framework (IPEF) to address supply chain resilience, digital trade, anti-corruption and decarbonization. The 13-member framework aims to become a high-standard rule-making process for international trade and investment without offering direct market access to the United States.
New disciplinary rules are good news for East Asia because they signal increased U.S. engagement with East Asian economies. South Korea should play an active role in making the IPEF a durable, credible and open architecture for countries willing to adhere to rules-based economic connectivity.
A stronger South Korean alliance with the United States will also revitalize trilateral security cooperation between South Korea, the United States and Japan against North Korean nuclear threats.
Actively reviving the trilateral alliance will help mend South Korea―Japan relations, starting with the removal of sensitive trade restrictions. The two countries became formally connected in January 2022 through the Regional Comprehensive Economic Partnership (RCEP) ― an agreement that will expedite the mending process.
Yoon's new economic diplomacy with the United States is likely to make China uneasy. In ROK―China relations, Yoon has emphasized the need for mutual respect and principled diplomacy to achieve pragmatic win-win outcomes. This is unsurprising given that East Asian economies prefer to avoid choosing between the United States and China.
This dilemma could be mitigated by upgrading the China-driven RCEP to match the high standards of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Doing so would mean addressing the issues of state subsidies, labor conditions, intellectual property rights, cross-border data transfers and environmental concerns.
China has already submitted a formal application to join the CPTPP, but South Korea has not yet applied, although it approved an entry plan. Joining the CPTPP would enable deeper South Korean integration with regional trade.
All CPTPP members have vetoes over new membership applications, so China will need to carry out domestic reforms to meet the high standards of the CPTPP to ensure “competitive coexistence” with the United States.
Yoon's domestic economic agenda is a challenging feat to achieve. South Korea needs to tackle everything from the prospects of stagflation, mounting household and national debt and record youth unemployment. Some of these issues are chronic, while others emerged amid the COVID-19 pandemic, and others have been aggravated by the ongoing Russia―Ukraine war.
In this landscape, Yoon's pro-growth agenda of tax cuts and deregulation needs to deal effectively with inequality. Yoon may run into heavy criticism from the main opposition Democratic Party of Korea (DPK) ― which prioritizes labor rights and equitable distribution ― in the National Assembly if he ignores this issue.
After Yoon's party was mostly victorious in the local elections last month, his political support should be enough to push for a U.S.-aligned economic strategy while maintaining trade engagement with China. Still, upgrading the ROK―China FTA on the basis of “mutual respect and principled diplomacy” remains his big test.
Ahn Choong-yong (cyahn@cau.ac.kr) is distinguished professor at the Graduate School of International Studies, Chung-Ang University. This article was published on July 5 in East Asia Forum, an English-language international policy forum based at the Australian National University's Crawford School of Public Policy.