Navigating US-China rivalry

Troy Stangarone

In his initial remarks as president, Lee Jae-myung did not make a reference to the new administration's policy toward China. Given the short campaign, it is perhaps not surprising that some policies may not be fully defined, but developing a new China policy in the context of U.S.-China geostrategic rivalry will be one of the key challenges for the new administration.

The default policy for much of the last two decades, with China being Korea's economic engine and the United States its security partner, is no longer viable. The U.S.-China relationship has transitioned from economic cooperation to strategic rivalry, which has spilled over into Korea's economic relationship with China and into North Korea policy as well.

While Trump himself is largely focused on the trade deficit, during his first administration, a bipartisan consensus developed on China. It centered on concerns about Beijing’s use of forced tech transfers, efforts to develop AI to advance its military capabilities, the utilization of its burgeoning tech industry to conduct espionage and the growing U.S. dependence on Chinese technology for the US economy and military.

While Trump could be a wild card and cut a deal with China that eases the rivalry, any agreement, especially one that did not address broader U.S. national security concerns, would likely be an unstable truce at best. The shift to strategic rivalry between the United States and China will remain a defining feature of international relations for the foreseeable future.

Any Korean policy toward China needs to be designed to manage relations during a period of increasing strategic competition that will reshape Korea’s ability to pursue its interests, just as the early stages of this rivalry have already impacted Korea.

The semiconductor industry is a prominent example of how Trump's China policy has indirectly impacted Korea. Both Samsung and SK Hynix have significant investments in memory chip production in China. About 40 percent of Samsung’s NAND flash memory is produced in China, as well as around 40 percent of SK Hynix’s DRAM production. U.S. export controls on semiconductor manufacturing equipment would have forced those operations to stop, but the Biden administration provided Samsung and SK Hynix validated end-user status that eased the controls. Meanwhile, the U.S. CHIPS Act, supporting American technology manufacturing, placed limits on investments in upgrading those plants.

Korean firms have been impacted by China’s response to U.S. export controls and tariffs. To counter the U.S., China began developing its own regime of export controls for rare earth minerals and other products. New controls were announced on April 4 on seven rare earth minerals and the permanent magnets that are critical for the production of EVs, high-tech products and military equipment. The slowdown in the export of these items has impacted U.S. firms and firms worldwide as well. China is likely to use this leverage going forward in its relations with all nations.

While the U.S.-China relationship has changed, so has Korea's economic relationship with China. No longer complementary economic partners, in many industries Korea and China are now economic competitors and rivals. China has passed Korea as the world’s largest shipbuilder, CXMT’s memory chips are increasingly competitive with Samsung chips, and in areas such as EVs and autonomous vehicles, Chinese technology is the most advanced.

Chinese use of subsidies to support industry have also resulted in the development of overcapacity that allows Chinese firms to undercut their rivals. If U.S. tariffs stay relatively high, that will push excess Chinese production into Korea and other markets where Korea and China compete head-to-head, further eroding Korean competitiveness.

U.S. and Korea firms face the same challenges from China, of forced technological transfers and overcapacity, so any Korean approach will need to balance the Trump administration's unwillingness to work with allies on common problems with Chinese pressure on Seoul.

Economic tensions dating back to the first Trump administration remain a factor in China’s relaxation of North Korea sanctions enforcement. Without bringing China back as a responsible partner, the trade war will indirectly impact Seoul's ability to engage Pyongyang.

Navigating this rivalry will require a pragmatic approach that sets aside old ideas and develops new approaches grounded in a shift from an international environment centered on U.S. power to one increasingly dominated by geostrategic rivalry. That will require the new administration to take a more transactional approach to both China and the United States, but also to accept that despite shared interests, the U.S. may not always be a willing partner in addressing shared challenges.

Troy Stangarone is the senior director of congressional affairs and trade at the Korea Economic Institute.