South Korea ponders the high cost of being America’s friend

Last time it was the Netherlands and Japan, now it is South Korea and soon it will be all the rich G7 countries. Being an ally of the US at a time when geopolitics leans heavily on trade policy certainly keeps it on its toes. It’s also quite galling when Washington expects you to take economic blows for geopolitical gains when it’s not always willing to do the same.

This week, the Financial Times revealed that the US is pressuring Korean semiconductor makers (mainly Samsung and SK Hynix) not to fill any supply gaps to China if US chipmaker Micron is excluded from the Chinese markets for reasons of national security.

Due to their military uses, and more generally to limit China’s technological advancement, semiconductors are one of the main pressure points for the US campaign on security and trade. This year, Washington managed to pressure the Netherlands and Japan to agree to stricter export controls on chip exports to China.

Washington’s implicit threat is to allow waivers granted to Korean companies to expire after the US last October imposed sweeping controls on trade in chips and chip equipment with China. The US can, in theory, use its loophole-tempered extraterritorial sanctioning powers to hone coercion not only on adversaries but on allies as well.

Korean President Yoon Suk Yeol visits the White House this week. He is relatively aggressive with China, but also has to consider Korea’s broader commercial and diplomatic interests.

China is now by far Korea’s largest trading partner, with the United States in second place. Korea established a lucrative position providing higher-value components as well as being a consumer market during the construction of the “Factory Asia” electronics supply network during the 1990s and 2000s. That was concomitant with the rise of China as a world-class trading nation. The effective decoupling of the US and China will need the support of other Asia-Pacific countries.

US consumer goods companies and ultimately the US market remain the end point of many Asia-Pacific supply chains, raising the question of how credible the threat to disrupt the market really is. China’s semiconductor industry. Chinese-made DRam chips, for example, find their way via Taiwanese company Foxconn into Apple iPhones sold in the US.

Assuming Seoul believes it has a genuine choice, Korea must decide how far it is willing to override its trade interests in favor of maintaining relations with the US, its former military and foreign policy ally. And here it might help if the US threw its so-called allies the odd symbolic bone.

Korean automakers Hyundai and Kia are among the foreign companies fighting to join the golden circle eligible for US electric vehicle tax credits under Joe Biden’s Inflation Reduction Act. Although Hyundai built a car plant in the state of Georgia, they have so far failed. Although less prominent than the EV subsidies, the rest of the IRA will cause more distortions in world trade. For Biden, jobs at home have trumped alliances abroad.

Korea might also suspect that the US warning has more to do with Micron’s profits than national security. The Netherlands chafed when ASML, its world-leading chip machine manufacturing company, was prevented from exporting kits to China in 2019 only to find that American companies were filling the gap with semiconductors they had made themselves.

As Hosuk Lee-Makiyama of the Brussels-based think tank ECIPE puts it: “After the IRA, the US has no trade allies. They compartmentalize business and politics and then wonder why the rest of the world does the same.”

It is becoming increasingly clear that, for reasons of trade, diplomatic independence, and sheer practicality, the US designated circle of allies is not blindly following Washington in whatever confrontational and coercive policy it chooses against China, or even against Russia. , an economically and politically clearer country. cutting target.

The FT has reported that the US, concerned about loopholes in its sanctions on Moscow, has proposed that the G7 adopt a full ban on exports to Russia, but the rest of the group is resisting. The UK, despite perpetually insisting on its Anglospheric relationship with the US, has similarly distanced itself from the US’s hawkish Chinese disengagement strategy.

The United States has failed to assemble a gang of staunch supporters on whose political loyalty it can depend. He is up against a spectrum of more or less friendly nations making concessions on a case-by-case basis about which of Washington’s initiatives they want to support, decisions in which trade considerations will inevitably play a role. It’s an awkward situation for a president who has just declared his intention to run for re-election on the grounds of creating jobs at home rather than sending them abroad.

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