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'Seoul should ask Washington to remain responsible ally'
By Kim Yoo-chul
Maintaining close relationships requires sacrifice ― but sacrifice means little when partners aren't mutually supportive.
For relationships ― person-to-person, party-to-party, even country-to-country ― to work, interested parties must sometimes make sacrifices for the greater good.
If parties feel backed by their allies, then sacrifices made would be more an act of good faith.
But South Korean business executives and politicians are becoming increasingly frustrated about recent announcements by the U.S. Joe Biden administration that are supposedly aimed at strengthening U.S. manufacturing for supply chain resilience and affordable chips, batteries and pharmaceuticals. South Korea is already one of the top foreign direct investors (FDIs) in the United States.
The bilateral alliance between Seoul and Washington is founded in a common sacrifice and shared will. South Korea is a big supporter of the Biden administration's intention to work with "like-minded allies" to construct more stable supply chain systems ― with tech affiliates of Samsung, SK and LG Group confirming massive investment plans in the United States, from semiconductors to batteries.
The Biden administration is moving forward with an idea of "friendshoring" in the wake of its dispute with China, the COVID-19 crisis and Russia's invasion of Ukraine, as these events have raised questions about the validity of both global and globalized economics.
Countries in Europe, which pursued offshoring ― reducing fixed costs by moving facilities to countries with cheaper labor costs ― were pushed by supply chain disruptions to bring their facilities back to their home countries, known as reshoring. But the Biden administration said because the United States can't manufacture everything itself, it should cooperate with its allies and partner countries to promote collective supply chain resilience.
From South Korea's standpoint, its backing of this friendshoring initiative will cost a lot because this concept might be viewed as part of a "de-globalization" process in some ways. And along with the U.S., China is among South Korea's most important trade partners.
Experts and analysts urged Seoul officials to leverage the country's strengths in semiconductors, batteries and biotechnology to win better economic concessions from the U.S.
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| U.S. President Joe Biden speaks at the North American International Auto Show in Detroit, Sept. 14. AP-Yonhap |
"Despite South Korea's participation in the Chip 4 architecture and South Korean businesses' support about the Inflation Reduction Act (IRA), the U.S. is also ready to ask South Korean biotechnology companies to invest more there. The point of concern is no estimated benefits have been specified, at least from South Korea's standpoint, in exchange for Seoul's backing of the Chip 4 and IRA," an executive at the country's top-tier CDMO manufacturer said over the telephone. "It seems to me like South Korean businesses are being asked to make the sacrifice."
Chip 4 is a chip supply chain collaboration that brings together Seoul, Taipei, Tokyo and Washington.
CDMO is short for contract development and manufacturing organization.
Representatives at Samsung Biologics, SK Bioscience and Lotte Biologics declined to comment regarding the estimated effects of the Biotechnology and Biomanufacturing Initiative signed by Biden.
Political analysts in Seoul have no great concerns that the Biden administration's trade policy could result in a palpable resentment among the South Korean public, as the prime targets of recent legislations are limited to specific industries only.
But as South Korean President Yoon Suk-yeol and his administration have been moving to solidify Seoul's economic and national security relationship with the U.S., any stark contrast between Seoul and Washington regarding the Biden administration's trade policy could result in a diplomatic tussle.
"For example, the Biden administration's bio initiative will help South Korean manufacturers advance in the world's most important market as it is aimed at reducing China's influence in the sector. But if the United States forbade South Korean companies from manufacturing bio products for clients in China, following a similar rule of which will be effective for U.S. chip firms soon, then that will have adverse effects on South Korean companies," an official at KoreaBio, an industry association, said on condition of anonymity.
"Washington has be clear what specific benefits South Korean companies will receive in supporting its bio initiative."
Politics of protectionism ahead of US mid-term election
A recent series of announcements by the Biden administration come less than two months before the November mid-term election.
Biden's job approval rating had been seeing signs of improvement amid falling gas prices and the enactment of legislative policies such as the IRA. The passage of the IRA, for example, was cited as the core factor to shoot up his approval rating, according to a survey conducted jointly by Morning Consult and Politico during the period of Aug. 19 to 21.
Political analysts said South Korean politicians and businesses should expand their lobbying presence in the U.S. because batteries, semiconductors and biotechnology are viewed as national security assets, and are also classified as strategic industries crucial to the U.S. economy. South Korea is home to world-class companies in these segments.
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| Traders work on the floor of the New York Stock Exchange (NYSE) on Sept. 16, in New York City. AFP-Yonhap |
"Ahead of the mid-term election, the Biden administration is pursuing an economic protectionism-oriented agenda. As the conflict between China and the U.S. is deepening, this policy agenda, which also means the protection of U.S. producers from foreign rivalry, is just the right appealing point to voters. This protectionist policy won't do any good at all ― not only for U.S. consumers but the overall economy," said a senior trade policy official under the former Moon Jae-in administration.
"But in the short term, this policy would be good for keeping jobs and lowering inflation of base products. South Korea is positioned to speak out on why the country's chip, battery and biotech companies should be the top beneficiaries from tax credits and other types of federal assistance there, because the country has clear leverage to do so."
After acknowledging South Korea's frustration over the cancellation of South Korean-manufactured electric vehicles (EV) from the eligibility for tax credits at the time of the announcement of the IRA, U.S. National Security Council Coordinator John Kirby said it is taking South Korea's concerns over the IRA "seriously."
Hyundai Motor is set to advance the operation of its first EV-only manufacturing plant being built in the U.S. state of Georgia by one year to 2024. Hyundai's Ioniq 5 and Kia's EV6 models are currently available to U.S. consumers, but they are assembled in South Korea. The IRA offers a tax credit of up to $7,500 to a purchaser of an EV assembled in North America.
"Blind faith could lead a loss of goals," said Lee Hang-koo, a researcher at Korea Automotive Technology Institute. "As South Korea is increasingly asked to do more amid the Biden administration's drive for a U.S. manufacturing renaissance, the country's politicians and businesses should ramp up lobbying efforts and expand lobbying networks in the U.S., as lobbying provides an access point to government legislatures."
"Any outstanding issues related to Seoul's best interests brought to a legislature's attention will be a matter for that legislature's constituents," said Lee Hyun-tae, a professor of China studies at Incheon University. "Government-level talks with the U.S. should strictly be focused on benefits for South Korean businesses, how and when as a condition for the backing of U.S. trade policy."
A bilateral summit between the leaders of South Korea and the U.S. is planned this week on the sidelines of the United Nations General Assembly in New York. Officials at the presidential office said one of the top purposes of the Biden-Yoon summit is to narrow the differences between the countries over points of view regarding recent U.S. legislation.
The question is whether or not politicians acknowledge the potential downsides of economic protectionism. "They are already informed on this," a government official said. "However, having more political points does matter, especially when approached by elections. But because there is no monopoly on every good idea, Seoul should have its own principles and fine-tuned strategies asking Washington to remain a responsible ally."
