America’s New Industrial Policy and Korea’s Response

U.S. President Joe Biden has been promoting a “Made in America” policy. In support of the program, he signed the Executive Order to Ensure Robust Reviews of Evolving National Security Risks on Sep. 15. This executive order mandated an analysis of the impact made on national security and technological leadership when foreigners attempt to merge or acquire American semiconductor, electric vehicle batteries, hydrogen, biotechnology, AI or quantum computing companies. While this is primarily aimed at Chinese companies’ merger and acquisition (M&A) activity regarding American companies, the order also specified considering “whether a foreign person involved in the transaction has ties to third parties that may pose a threat to U.S. national security.” This means that even M&A attempts from U.S. allies could be thwarted if they have relations with China.

Using the executive order as a foundation, the U.S. government plans to request its allies to implement stricter measures to review investments in China. The underlying meaning of this is that companies from U.S. allies must break off close relationships with China if they are to do proper business in the U.S. This measure has tremendous implications for South Korea and its companies that have deep economic relations with China, including heavy investments in China. In other words, Korea’s “strategic ambiguity” that allowed it to benefit from both its alliance with U.S. and the Chinese market is no longer possible. Korea must now choose between the two countries.

The official justification for the ”Made in America” policy is the need to keep China’s communist dictatorship in check in the age of a new Cold War. But it is also being promoted to revive the American manufacturing industry. In fact, it could be said that the policies are being advanced solely for the benefit of the U.S. That is because if a company from another country invests in the U.S., the invested money will enter the U.S. economy, and industries supported by this money will hire Americans, pay taxes to the U.S. and contribute to the U.S. supply chain and safety. In addition, the “Made in America” policy is likely to be applied differently to American and foreign companies under the pretext of limiting Chinese influence. If this becomes the case, companies operating in countries that are allies of the U.S. may not be able to receive benefits for their investment in the U.S.

Allies whose businesses have to invest large sums in the U.S. but also rely economically on China are sure to feel troubled. This would be especially true for Korea, whose economic ties with China are so entangled with its geopolitics that it is nearly impossible for Korea to sever them at once. The U.S. may take advantage of this fact and refuse to grant benefits to Korean investors, as it did with Hyundai Motor’s electric vehicles. But completely cutting off all ties with China to avoid these penalties would mean suffering huge economic losses. This places Korea in a difficult situation.

However, in the long run, the policy may also be beneficial for South Korea. There exists the possibility that Chinese industries will surpass Korean industries in all fields in the near future; with U.S. checks in place, that possibility is now moving further away from reality. It is a nightmare just to imagine how China will treat Korea if the “Chinese Dream” comes to fruition, in a world where China is ahead of Korea in major industries and seizes global hegemony. From this perspective, the U.S.’ policy toward China does not seem as bad at it looks. While it puts Korea in a difficult situation, it also makes clear what choice Korea should make.

However, Korea needs to minimize its own damage in the process. Korean businesses should hurry to leave China but postpone immediate investment plans in the U.S. They should seek alternative places to invest in, such as North American Free Trade Agreement members Canada and Mexico, and work with the Korean government to discontinue the U.S.’ discriminatory regulations or measures against Korean companies that invested in the U.S. For this to succeed, businesses and the Korean government should mobilize every diplomatic resource available, including their diplomatic power, trade negotiations and lobbying to persuade the U.S. administration.