As a candidate and now as president, Donald Trump has engendered alarm within the South Korean authorities and its enterprise neighborhood, a lot as is the case with Japan. It’s because his insurance policies might critically have an effect on Korean companies invested or planning to pour extra funds in america, exporting straight or not directly (e.g., by Canada) to the U.S., collaborating in South Korea-U.S. financial safety cooperation initiatives, having shut ties to China, or embroiled in troublesome dealings with American corporations in South Korea. The richness and significance of bilateral financial ties and the broader South Korea-U.S. financial and safety partnership warrant a better take a look at these typically undertreated points and methods for Korean enterprise to reply.
One menace that has gotten acceptable consideration is the doubtless U.S. retreat from the Inflation Discount Act (IRA), which has inspired, amongst different issues, Korean electrical automobile (EV) and electrical battery funding within the U.S., in addition to the CHIPS and Science Act, which has supported Korean semiconductor-related funding in america. Relating to the IRA, the difficulty is that the brand new U.S. administration has paused disbursement of funds appropriated underneath the act through an executive order. As for the CHIPS Act, the concern is that Trump will terminate, freeze, or claw again loans and grants.
Korean executives have made clear these applications are essential drivers of South Korean overseas direct funding (FDI) in america. The IRA and the CHIPS Act have spurred speak of $54 billion in EV and battery FDI by main Korean gamers similar to LG Power Resolution, SK On, and Samsung SDI. In addition they have stimulated tens of billions of FDI in semiconductor-related amenities by Korean companies like Samsung Electronics and SK Hynix.
Driving the aforementioned anxieties is Trump and group members similar to Power Secretary nominee Chris Wright’s dislike of EVs and subsidies, financial nationalism, fondness for fossil fuels, nuclear energy, and gas-powered vehicles, and love of tariffs as an FDI “incentive.”
Trump’s plans to spice up tariffs massively on China and considerably on American allies and companions similar to South Korea, Canada, and Mexico are extremely threatening to Korean companies in South Korea and overseas locales, together with america. In spite of everything, they’ve invested notable sums into such nations to decrease their manufacturing prices, faucet into provide chain clusters, and bounce commerce partitions.
Moreover, Trump and his administration could revisit the 2 nations’ most necessary bilateral financial settlement; that’s, the Korea-U.S. Free Commerce Settlement (KORUS), which covers commerce, FDI, and different financial points. Certainly, Trump beforehand criticized KORUS and threatened its cancellation. Of notice, the mentor of Trump’s U.S. Commerce Consultant (USTR) appointee Jamieson Greer, former USTR Robert Lighthizer, who performed a key position in renegotiating KORUS in 2018, has expressed dismay with the settlement’s outcomes a number of instances.
South Korea and the U.S. have been partnering in lots of financial safety areas underneath bilateral and multilateral auspices. Collaborative ventures contain authorities, business, and tutorial representatives and deal with subject areas like excessive tech, important minerals, and power safety. Examples in the first area embody the Korea-U.S. Superior Trade and Expertise Cooperation Discussion board, the U.S.-Korea Provide Chain and Industrial Dialogue, and the U.S.-Korea Semiconductor Discussion board. Within the second space, South Korea and the U.S. have an early warning system for provide chain disruptions and are cooperating on important minerals. In addition they collaborate by the multi-nation Minerals Safety Partnership (MSP), which promotes personal and public funding in important mineral provide chains. As for the third space, Korea and the U.S. have an power safety coverage dialogue and usually focus on cooperation in and the prioritization of areas similar to clear power provide chains, lithium-ion battery recycling, and nuclear power. As effectively, billions in U.S. Division of Power loans have been awarded to South Korean corporations or joint Korean-U.S. ventures or battery crops.
It’s doubtless that South Korea and america will proceed to cooperate in these areas. Nevertheless, provided that Trump will not be a fan of both multilateralism or institutionalized preparations, is against subsidies, and insists on U.S.-based manufacturing, it’s possible the aforementioned partnerships will atrophy or be eradicated or downsized.
Whereas his financial coverage towards China appears much less sure than it as soon as was, the sentiment that Trump and most of his coterie – Vice President J.D. Vance, Secretary of State Marco Rubio, Nationwide Safety Adviser Mike Waltz, USTR nominee Greer, and so forth – are China hawks is widespread. This implies they’re more likely to stress Korean corporations, particularly these within the realm of high-tech, to limit or terminate dealings with China. It is a severe matter given the breadth and depth of China-South Korea funding, commerce, and different financial ties. This stated, U.S. decoupling insurance policies towards China have advantages for Korean companies, too. For example, U.S. efforts to limit dealings with Chinese firms such as CATL and Tencent open avenues for South Korean companies to seize market share, make investments, and showcase their high-tech and manufacturing capabilities.
One more concern for Korean companies competing towards or going through disadvantageous dealings with U.S. high-tech corporations is the Trump administration’s doubtless opposition to South Korean regulation of American high-tech companies similar to platform and social media corporations. Greer previously slammed Korean online platform regulations, deriding them as a “menace to the commerce relationship between the 2 nations.”
South Korean corporations have adopted a mixture of political and enterprise ways to adapt to the threatening surroundings described above. On the political entrance, they’ve tried to curry favor by making gestures similar to donating to Trump’s inaugural fund. In addition they have been making managerial and staffing choices that may enhance connections with the brand new U.S. authorities. For example, Hyundai Motors boldly promoted an American to CEO rank. On the enterprise entrance, they’re reconsidering their funding plans within the U.S., Canada, Mexico, and elsewhere. Korean corporations are also ramping up funding at house to reinforce their competitiveness.
These are smart strikes, however they aren’t sufficient. Korean corporations have to leverage their presence in U.S. pink states, which presumptively have the ear of Trump or his circle. In addition they want to search out methods to attach with Rubio and United Nations Ambassador appointee Elise Stefanik, each of whom have expressed constructive views in regards to the South Korea-U.S. relationship. This stated, there shouldn’t be extreme stress on South Korea’s position as an American safety companion provided that Trump feels Seoul will not be paying its justifiable share.
Korean companies and their authorities representatives ought to discover methods to extend funding in areas like important minerals that the U.S. prioritizes, to spice up cooperation in areas of nice curiosity to Trump and his group similar to infrastructure, nuclear energy, and shipbuilding, and to extend separation from China. It’s crucial, too, for Korea companies to increase financial interactions with different nations and corporations, rethink the geographic distribution of their FDI, and turn into extra environment friendly and modern.
The South Korea-U.S. financial partnership stands at a crossroads now that Trump is occupying the White Home. The trail ahead for Korean corporations will likely be onerous to navigate given all of the challenges, uncertainties about what precisely Trump will do, and home political instability inside South Korea. Regardless, Korean corporations can not afford to face nonetheless. It’s important they embrace a proactive reasonably than a reactionary strategy to keep away from the debilitation, discharging, and devitalization which will movement from Trump 2.0.
