What do Biden administration's trade, economic policies mean for Korea?

By Robert D. Atkinson

While U.S. President Joe Biden has only been in office about two months, there are already signs that suggest how his administration's priorities could affect South Korea.

The most important thing to understand is that U.S. policy will not return to the status quo that existed before President Donald Trump. Since the Cold War, U.S. trade policy was largely crafted to achieve broad foreign policy goals, even at the cost of U.S. economic competitiveness.

For decades, the most important priorities were to assure global security and to constrain the Soviet Union. In recent years, priorities have included fighting Islamic terrorism, as well as issues such as human rights and climate change.

But today, America's relative economic and technological strength is so diminished from where it was even 20 years ago that it can no longer afford that approach.

President Trump would not have been inclined to pursue such a policy, anyway. He was determined to put America's economic self-interest first. That determination led him, rightly, to push back against systemically unfair Chinese economic and trade practices, though he did so largely by embracing protectionism and unilateralism.

The Biden administration will not be a second Trump term ― but neither will it be a third Obama term. We can expect the new administration to continue pushing back against China's unfair trade and economic practices ― but instead of doing so unilaterally, it will rely more on allies and the World Trade Organization.

If Korea engages in U.S.-led WTO cases ― and if it supports overall WTO reform ― then it will demonstrate its commitment to a strong U.S. partnership.

It is clear that the last U.S. administration's go-it-alone approach did little to change China's behavior, but it did enable firms in other countries, including Korea, to take U.S. market share in China. For this reason, Biden will be looking for allies to step up to the plate, and this will put Korea in a difficult position.

On the one hand, Korea has strong national security and economic interests in staying tightly aligned with the United States. On the other hand, China has made clear, including with its so-called "wolf warrior" diplomacy, that it is willing to punish countries that don't comply with its wishes. It will be a challenge to avoid incurring the "wrath of Xi" while making it clear that Korea is allied with the United States in pushing back against Chinese economic and military aggression.

The Biden administration may also push for new sector-based trade agreements, such as an e-commerce agreement, an environmental goods and services agreement, and a new information technology agreement, where Korean support and partnership will be critical.

However, the administration is unlikely to push for major new country-based trade agreements or even to join existing ones that Korea is a member of, such as the CPTPP. Rather, the overarching economic focus for the president will be at home, where he will seek congressional approval to enact his "Build Back Better" plan, including requirements to produce more in the United States, coupled and increased public investments in industry and competitiveness.

Already the president has issued an executive order to expand the Buy American program, to ensure the federal government and its contractors procure a greater share of goods and services produced domestically. This will make it harder for Korean companies to sell to the U.S. unless they have onshore production facilities. While it's unclear what the administration will do with regard to tariffs and quotas, including on the steel industry, it is clear that the administration's instincts are not anywhere near as protectionist as the Trump administration's were.

Republicans and Democrats both are interested in ensuring there are robust domestic supply chains, especially to respond to the China threat, so there will be broad agreement that firms in allied nations should invest in the United States if they want access to the U.S. market. Semiconductors are a prime example.

The recent announcement by chipmaker Intel that it has fallen behind its next-generation chip targets and is considering buying chips from other companies ― presumably Taiwan's TSMC ― is making many U.S. officials, especially in the national security establishment, increasingly worried about relying on foreign chips. We are seeing the same concern in batteries, a critical technology for the military and for next-generation electric vehicles.

As such, Korean companies may face the same kind of pressure that Japanese companies faced in the late 1980s and 1990s: If they do not continue to establish facilities in the United States, their market access could be limited. Leading Korean companies like Hyundai, LG, and Samsung have all made investments in the United States, and some have announced new commitments.

Those kinds of decisions will likely to go a long way toward ensuring strong two-way trade between our two nations. And while the Biden administration probably will strictly apply the CFIUS program that governs foreign investment in the United States, its focus will be almost exclusively on adversaries, particularly China, and not on friends and allies like Korea. (CFIUS stands for the Committee on Foreign Investment in the United States.)

U.S. trade and economic policy over the next four years will likely be quite different than it was prior decades, but it is clear that both the United States and Korea have strong interests in maintaining a solid and open trading relationship.

Robert D. Atkinson (@RobAtkinsonITIF) is president of the Information Technology and Innovation Foundation (ITIF), the world's leading think tank for science and technology policy.

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