How To Deal with the US-China Conflict

It is well known that the intensifying U.S.-China conflict is not desirable for us. There are concerns about the so-called “line up” situation, in which we will have to side with either the United States or China due to the escalation of the conflict. This perspective is more so from South Korean companies that have experienced considerable difficulties in the Terminal High Altitude Area Defense crisis. Therefore, it is best to avoid situations that could escalate the conflict as much as possible, but it is not that easy. As the conflict between the U.S. and China has the nature of a competition for technological hegemony between superpowers countries, there is a strong prospect that it will continue to intensify in the future.

In the end, we must come up with a response plan based on our own national interest, which makes it important at this time to accurately understand the level of U.S. demand. For example, the establishment of a representative semiconductor alliance among China's decoupling policies pursued by the Biden administration is a slightly different view from that of U.S. companies, industries and government officials. Among government officials, the views of those in charge of security or defense and those in charge of economics or diplomacy are somewhat different.

The perspective of industry or company owners is very realistic. We do not believe that complete separation from China is possible (especially in the short term). However, it has been acknowledged that reducing excessive dependence on China is necessary for companies to stabilize their supply chains. In the case of semiconductors, they are well aware of the role and limitations of Korea in the global supply chain, and they believe that South Korea and Taiwan are urgently investing in manufacturing facilities in the U.S. because it is impossible to boost the U.S. manufacturing capacity in the short term.

Security officials have a different view of China. China is perceived as a competitor that directly threatens the security of the U.S., and a hostile competitor at that. Therefore, high-tech semiconductor manufacturing technologies, which are the core materials of the fourth industrial revolution such as 5G, artificial intelligence and self-driving cars, are actively preventing them from entering China. They also know exactly how important China is to the Korean economy. Nevertheless, some say that South Korea should participate in the U.S.-led semiconductor alliance and, in some cases, bear the costs incurred. It is, of course, based on the belief that security is more important than economic calculations.

The perspectives of economic, trade and diplomatic officials are more flexible than those of security officials. They are well aware of China's status in the Korean economy. Nevertheless, their perspective wants to join the U.S.-led alliance, and to this end, it emphasizes the importance and synergy of the alliance and that it will persuade them to help each other develop. Sometimes, the transfer of non-high-tech technology to China is overlooked. Of course, this view seeks balance rather than extremes, but the balance is always skewed toward the U.S.

The reason why U.S. perspectives differ from official to official is that most of the policies are made bottom-up (from the public to the authorities), and various opinions are coordinated from the bottom to the top. Therefore, our response should also take into account the differences among policymakers in the U.S. This is also the reason why a multi-layered approach is needed, in which companies and industries participate and voice their opinions and academia or expert groups create persuasive logic to support the government and industry, rather than the government alone. At the same time, we need to expand and develop specialized institutions that will convincingly communicate our position to the administration, Congress, and expert groups in Washington, D.C. It's too shameful to expect hundreds of billions of won from paying a few billion won.