Igor Ivanov — about the problems of economic relations between Seoul and WashingtonDue to the growth of the economic and trade influence of the Republic of Korea in the world in recent decades, some transformation can be observed in US-South Korean relations.
Their ties seem to have become more equal compared to the twentieth century — in any case, now American presidents are attracting South Korean investments.
So, in May 2022, Hyundai Motor announced an investment of $10.5 billion, in July Samsung Electronics announced its intentions to invest almost $200 billion over 20 years in the production of semiconductors in Texas.
In the summer, the South Korean SK Group announced plans to invest $22 billion in projects on American soil in the field of microchips, "green" technologies and biotechnologies. In addition, a joint venture between SK Group and the American company Ford was founded in July, which will manufacture batteries for electric vehicles in the states of Tennessee and Kentucky. The cost of the project is estimated at $7.7 billion, SK Group will take over half of this amount.
In October, Japanese Honda and South Korean LG Energy Solution agreed to invest $3.5 billion in a battery manufacturing plant in Ohio.
The sums are impressive, and critics against this background note that the investments of South Korean giants in the American economy mean that they will not create new jobs and production sites in the Republic of Korea itself. At the same time, it is unclear how much these injections are voluntary, and not forced — protectionist tendencies in the spirit of "America first" have been clearly strengthening in the United States lately. By luring Seoul to its side in the trade and technological confrontation with China, Washington seems to be offering its market in return, but even here everything is not going as smoothly as one would expect from "idyllic" allies.
The next stumbling block was the American law on reducing inflation (Inflation Reduction Act), which has so far deprived South Korean automakers of benefits in the electric vehicle market in the United States, as well as restrictions on trade with China in the field of semiconductors.
Semiconductor trading
In early October, the United States decided to "curb" the supply of semiconductors and equipment for the production of chips to China. This probably came as an unpleasant surprise for the South Korean side — China accounts for up to 60% of South Korea's exports in the field of semiconductors. At the same time, Samsung Electronics and SK Hynix own factories in China, and supplies of American components are necessary for their operation. Washington allowed these companies to continue deliveries for a year, but this does not save them from problems in the future.
China as a whole is currently the largest trading partner of the Republic of Korea, and a natural question arises, why is Seoul ready to give up beneficial relations in favor of Washington's political interests? Despite the fact that the Republic of Korea is one of the largest manufacturers of microchips, it depends on American technologies — developments and software. "There is a systemic imbalance in our semiconductor industry. While maintaining strong competitiveness in the production of semiconductor memory chips, it is quite [heavily] dependent on equipment imports," the report of the International Trade Association of the Republic of Korea (KITA) says.
"It is difficult for companies to indicate their position, since the issue concerns foreign policy and security. We can neither lose China, which accounts for up to half of the world's demand, nor ignore the requirements of the United States, since we need to import equipment for technological development," a representative of the South Korean industry told the Hangere newspaper on the rights of anonymity.
Electric cars and the law on reducing inflation
In May, during a visit to the Republic of Korea, US President Joe Biden met with the Chairman of Hyundai Motor Group, Jung Yoo Song, to personally thank him for the investment. The South Korean car giant then announced plans to invest $10.5 billion in the American economy. As part of this amount, an industrial mega-facility for the production of electric vehicles and batteries worth $5.5 billion will be built in the state of Georgia. As the media pointed out, this plant will be the largest economic project for the state.
Joe Biden presented the investments of South Korean companies as his own merit and pointed to new jobs that would be created through his mediation. This was especially important for the Democratic Party ahead of the midterm congressional elections in November.
However, harmony was violated by the American law on reducing inflation, signed by the same Biden on August 16. Among other things, it contains a clause on the provision of benefits when buying electric cars for up to $ 7.5 thousand, but they can only be used if the car, including the battery, was assembled in North America. Today, Hyundai and its affiliated KIA assemble electric cars in South Korea and only then export them to the United States.
It is clear what reaction such a turn of events caused in South Korean business circles. The media reported on the August 24 trip of the head of Hyundai to the United States allegedly for negotiations on this issue. The Government of the Republic of Korea has become more active. The authorities considered the law a violation of the bilateral free trade agreement and did not rule out filing a complaint with the WTO. It was also about discussing joint actions with other countries whose interests have suffered because of the law, such as Sweden, Japan, Germany.
Against this background, the costs of the concern for lobbying in the high offices of the United States seem to be in vain. And according to the non—profit organization OpenSecrets, in 2021 Hyundai Motor spent $ 1.2 million for these purposes, KIA - $ 960 thousand.
Not only the South Korean authorities had to respond to the "concern" of South Korean business, but also (albeit with some delay) the US leadership. The law on reducing inflation and its benefits became the subject of discussions between the presidents of the two countries, Yun Sok-yong and Joe Biden. After the meeting in New York, the American leader, in the "Byzantine manner" characteristic of American diplomacy, sent a letter to his colleague - it did not contain substantive promises, but it expressed "understanding" of Seoul's position. Joe Biden also stressed the need for "further honest and open consultations with South Korea" on this issue.
Nevertheless, experts even then expressed doubts about the possibility of changing the points of the American law on benefits, especially before the midterm elections in the United States. In fact, the South Korean auto giant has only to put up with another manifestation of the principle of "America first" and postpone the start of construction of the plant. Which, apparently, was done.
On October 25 — about six months earlier than the originally announced plans — a groundbreaking ceremony was held in Georgia with the participation of the chairman of Hyundai and the governor of the state. Nevertheless, the start of mass production at this facility is expected only in the first half of 2025.
Hyundai's pragmatic restraint is probably understandable — the US remains the second largest automotive market in the world and is an important part of the company's global ambitions. Nevertheless, by the way, the first place is occupied by the same China. The South Korean automaker plans to occupy 12% of the global electric car market by 2030 and sell about 840 thousand cars under the Hyundai, KIA and Genesis brands in the United States. Under these conditions, South Korean companies, including automotive and semiconductor companies, are beginning to look for new partners among lithium manufacturers outside of China.
At the same time, the provisions on benefits will force all manufacturers to reorient themselves. "No electric car currently on the market will meet the requirements for a full discount when the provisions applicable to batteries come into force in 2023," the Alliance for Automotive Industry Innovation said.
The arms market
It is no less interesting to observe the reaction of the United States to the promotion of the Republic of Korea in the arms market, where American exporters traditionally occupy strong positions.
After the May meeting, the leaders of the two countries, among other things, declared their readiness for cooperation in the field of supply chains in the defense industry, joint development and production of weapons. However, against the background of large transactions of South Korean companies with Poland, it seems that competition may be brewing between them.
President Yoon Seok-el has set an ambitious goal to make the Republic of Korea the world's fourth arms exporter after the United States, Russia and France by 2027. At the moment, South Korea is the eighth on this list. According to the media and experts, South Korean weapons have a number of advantages — they are cheaper than the American one, but comparable to it in quality, besides, they are often compatible with it. At the same time, companies from South Korea demonstrate a greater willingness to produce and transfer technologies together.
Let me remind you that in July Warsaw agreed with South Korean manufacturers to supply 48 fighters, 980 K2 tanks, 672 K9 self-propelled guns for a total amount of up to $15 billion, which will be the biggest success of the South Korean defense industry in the foreign market if all the points of the contracts are fulfilled. At the same time, 800 of the 980 tanks will be produced on the territory of Poland at least partially.
In addition, Seoul assures that they are able to handle orders faster than their American counterparts. In any case, in October Poland signed a contract for the supply of 288 South Korean Chunmoo MLRS, reducing the number of American HIMARS complexes planned for acquisition. And Defense Minister Mariusz Blaszczak directly explained that manufacturers from the United States would not be able to deliver products by the desired deadline.
As the Politico newspaper reported earlier, citing sources, the activity of South Korean corporations began to cause some concern in the circles of the US military-industrial complex. American companies could expect that in the conditions of the Ukrainian crisis, the countries of Eastern Europe would turn to them to replenish their arsenals and fleet of equipment.
At the same time, as the newspaper wrote, American officials retain a sense of superiority, believing that American weapons are better. "This is an exclusively marketing offensive by South Korea. They have not yet proved that they are able to handle orders as quickly as they promise," one of the sources told Politico.
