Special agreement between Korea, US required for shipbuilding cooperation

Six months after the unconstitutional and illegal state of emergency was declared in the middle of the night on Dec. 3 last year, President Lee Jae Myung's new administration took office on June 4. Now, 50 days have passed, and the state of affairs is finally beginning to return to normal.

People are hopeful not only for the restoration of democracy in Korea, but also for the revival of the domestic economy, which has stagnated since the onset of the pandemic. They hope that the industrial sector, which has declined gradually, will overcome the crisis and make a comeback. Such expectations are reflected in the stock market's performance, which is being driven by the new government's strategy to modernize the capital market and its commitment to economic stimulus.

However, the new government is facing challenging domestic and international economic realities.

As well as the stagnant domestic economy and the crisis of industrial decline, Korea faces significant challenges on the international stage. These include the restructuring of global supply chains, the rise of resource nationalism and protectionism and the transition to artificial intelligence (AI) and renewable energy. Concerns are particularly growing over the Korea-U.S. tariff negotiations.

However, given the highly complementary nature of the industrial structures of Korea and the U.S., the survival and maintenance of Korea's industrial ecosystem is inextricably linked to U.S. interests. In particular, as a leading nation in advanced manufacturing, Korea is pivotal to the “revival of manufacturing” referred to by U.S. President Donald Trump. Therefore, the two countries should leverage their complementary industrial structures to pursue strategic benefits that go beyond the predictable gains from tariff negotiations, such as tariff revenue and investment profits. This would entail upgrading the Korea-U.S. alliance, formed after the 1950-53 Korean War, to a strategic industrial alliance and establishing a strategic cooperative relationship to ensure the future survival of both countries.

Not only is Korean manufacturing more technologically advanced than China's, it is also much more reliable and strategic. Furthermore, it is more competitive than Germany's in terms of both price and quality. In addition, while Japan has competitive advantages in certain areas, such as precision parts, materials and equipment, Korea has competitive advantages across the entire manufacturing sector.

The U.S. has a strong presence in capital and big tech, while Korea has strengths in hardware and manufacturing foundries. In the case of AI, the U.S. has strengths in core technologies, while Korea can contribute its technological capabilities and know-how in areas such as autonomous manufacturing and health care, which apply these technologies. AI cooperation between Korea and the U.S. could contribute to the “revival of American manufacturing” mentioned by Trump. This could lead to job creation and innovation in global manufacturing.

In the energy sector, the U.S. possesses vast resources such as liquefied natural gas and shale gas, while Korea can provide power generation technology and manufacturing facilities for gas turbines. Furthermore, although the U.S. holds core technologies in the fields of nuclear power and small modular reactors, Korea can serve as an essential partner by providing core technologies and competitive manufacturing facilities. Korea is China's strongest competitor and an indispensable strategic industrial partner for the U.S. in sectors such as shipbuilding, defense, advanced machinery and batteries.

Korea is also actively contributing to the revival of manufacturing and job creation in the U.S. However, no matter how much localization investment is made in the U.S, it is impossible for all of Korea's skilled workers and small and medium-sized enterprises — that is, Korea's entire domestic manufacturing and industrial ecosystem — to relocate there. Likewise, U.S. workers and SMEs cannot take on the role previously played by Korea's manufacturing ecosystem in the short term. Therefore, if Korea's manufacturing ecosystem were to collapse, a strategic partnership with the U.S. would also become impossible. This means maintaining and preserving Korea's industrial ecosystem is in line with U.S. national interests, particularly with regard to strategic industries.

The same applies to cooperation in the shipbuilding industry. This is not just economic cooperation, but also cooperation based on the Korea-U.S. alliance and military alliance. Korea's shipbuilding industry is the best in the world in terms of technology, and the second-largest after China in terms of scale. This sector requires skilled workers and cannot be automated. The U.S. requires a long-term cooperation model that is immediately available. However, the construction of U.S.-flagged ships or warships by foreign countries is prohibited under the Byrnes-Tollefson Act and Johnson Act. To overcome this, the president would need to make a decision, there would need to be an intergovernmental agreement and the partner country would need to make commitments to ensure national security. Therefore, a special agreement based on the Korea-U.S. alliance is required to facilitate shipbuilding cooperation. This agreement must include provisions for establishing security infrastructure and for prohibiting foreign nationals from being employed or granted access in the maintenance and construction of warships.

With the establishment of new governments, Korea and the U.S. are currently moving forward together toward the future. There is significant potential for economic cooperation between the two countries to generate synergy in terms of industrial structure. It is time to move beyond simple discussions of trade surpluses and deficits, and advance toward a long-term strategic partnership. In order to open up an even brighter future, the Korea-U.S. alliance must now evolve beyond a military alliance to become a strategic industrial alliance.

Lee Un-ju is a three-term DPK lawmaker. She currently serves as a member of the Supreme Council, as chair of the Future Economic Growth Strategy Committee and as head of the AI AX Subcommittee under the party’s AI Superpower Initiative. She worked in the private sector as a corporate legal expert prior to entering politics, and is widely recognized as one of the party’s leading economic strategists.