A Liberal Values Alliance Is a New Opportunity

President Yoon Suk Yeol’s visit to the United States strengthened the Korea-U.S. alliance. At the same time, as companies actively participate in the United States’ supply chain policies, the opening of a liberal value alliance has begun. Can the Republic of Korea overcome this historic crisis by securing new growth drivers and protecting national security through a liberal value alliance?

There are always difficulties in the process of changing an existing economic structure. China is moving away from a structure dependent on imported intermediate goods and is building a self-contained industrial structure that also produces intermediate goods domestically. This Chinese industrial policy explains why, despite China’s economic growth over the past 10 years, Korea’s exports to China have not increased. Korea had been losing competitiveness against China, but failed to recognize this because of semiconductor exports.

If China comes to dominate the semiconductor industry, the Republic of Korea will be reduced to a market for China and lose its economic standing. China seems to believe that if it can merely sever the Korea-U.S.-Japan alliance, it will be able to control the Republic of Korea economically and militarily. The Korean economy is already withering under the threat from China, and time is on China’s side.

National security includes not only a military balance and the preservation of peace that follows from it, but also economic security, which allows citizens to live prosperous lives without threats. A liberal value alliance is a survival strategy for strengthening national security in a rapidly changing international environment. America’s pride was shattered not by the Vietnam War, but by the COVID-19 crisis. The American people experienced the collapse of supply chains for basic goods.

During the U.S.-China trade war under Donald Trump, China was exposed as a threat to economic security. The Joseph Robinette Biden Jr. administration has likewise formulated policies aimed at responding to the Chinese threat, easing anxiety over supply chains, and reinforcing the Democratic Party’s political agenda. This is represented by investment in clean energy and climate change under the Inflation Reduction Act.

The United States is using the Defense Production Act to promote domestic production of minerals needed for batteries and other products, and the CHIPS and Science Act strengthens semiconductor manufacturing, research, and the workforce development ecosystem. The Biden administration is presenting a policy of excluding China from the advanced semiconductor industry as a solution both to national security concerns and to anti-China sentiment at home. Some argue that investment in clean energy is a policy that benefits China, so it appears that the U.S. position will be clarified again in the presidential election.

These moves by the United States provide us with new opportunities while also reshaping the ecosystem that has been built in the semiconductor and battery industries. We face the urgent task of preparing response strategies for these ecosystem changes. Korea’s semiconductor industry grew by building an externally dependent ecosystem in equipment and manufacturing.

Our memory semiconductor ecosystem has a fragile structure in which equipment is brought in from ASML in the Netherlands and production takes place in China. Moreover, the ecosystem that utilizes semiconductors also depends on China. If an ecosystem based on a value alliance is not established, all of Korea’s industries will wither under China’s influence.

If Korean companies’ investment in the United States bears fruit through the strengthened Korea-U.S. alliance, a complete semiconductor production system will be established within the United States. This means that Korea will attain an impregnable position in future industries. Unless China can build a complete domestic semiconductor ecosystem of its own, China’s electronics industry will remain dependent on the semiconductor ecosystem of the value alliance.

From Korea’s perspective, instead of producing semiconductors in China, it is enough to produce them in Korea and the United States and sell them to China. In addition, within the semiconductor ecosystem of the value alliance, Korea must cultivate R&D capabilities and secure competitiveness not only in memory but also in non-memory semiconductors and equipment.

The same is true in the battery sector. All countries are dependent on China for battery minerals, but the United States is working to create a battery ecosystem independent of China by developing key minerals and strengthening cooperation with the Democratic Republic of the Congo. Through the value alliance, we have in effect secured bridgeheads into both the Chinese market and the American market. Major future industries have formed a value alliance, enabling joint development with the United States. This is also an opportunity to secure competitiveness against China.

It is difficult to understand the claim that these U.S. measures make things harder for our companies. The United States is offering us subsidies while providing opportunities to produce within the United States. At the same time, it is also strengthening the competitiveness of the related ecosystem. Our companies can choose not to receive U.S. subsidies and continue doing business with China as they do now. However, regardless of whether our companies receive subsidies, the United States will strengthen its domestic ecosystem and will not sell equipment to companies operating in China.

It is self-evident that a value alliance offers us opportunities. When our security was firm in our relationship with China, Korea and China strengthened cooperation with mutual respect. But when China manipulated security on the Korean Peninsula through the Six-Party Talks and the Korea-U.S.-Japan security framework weakened, Russia, China, and North Korea pressed us economically and in terms of security. A value alliance means overcoming conflict and marks the beginning of peace. Through a value alliance, Korea can secure a stable supply chain and strengthen the competitiveness of its industries within a relationship of mutual cooperation.

A value alliance is a necessary condition, but it alone does not guarantee our prosperity. Above all, it is crucial to preserve our competitive edge in existing industries such as steel, chemicals, electronics, shipbuilding, and nuclear power. Efforts to secure competitiveness against China are also the path toward strengthening cooperation with China.

Although national security can be protected through a value alliance, a value alliance does not mean another form of isolation. Cooperation with countries that uphold world peace is the cornerstone of our prosperity. I hope we will devise a strategy to cooperate freely with the world on the basis of a value alliance.

Junmo Yang, Yonsei University Professor

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Original title: 자유주의 가치동맹은 새로운 기회다

Author: Jun-mo Yang

Date: 2023-05-11

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=10&idx=25620