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US protectionism forces Seoul to take multilateral approach

By Kim Yoo-chul

The Inflation Reduction Act (IRA), the $430-billion climate and energy bill signed into law by U.S. President Joe Biden, has led to a considerable amount of discord in South Korea-United States relations.

Because the IRA requires vehicles to be assembled in Mexico, Canada and the United States _ NAFTA bloc _ the ineligibility of Hyundai Motor and affiliate Kia's electric vehicles (EVs) for federal tax credits offering U.S. consumers up to $7,500 will clearly put the South Korean automakers at a huge disadvantage in the United States market.

Seoul's presidential office claimed last week that Biden sent a letter to President Yoon Suk-yeol acknowledging Korea's concerns about the estimated impact of the legislation on the Korean auto industry.

Ruling People Power Party (PPP) politicians and political analysts are calling on the Biden administration to pay attention to growing complaints by South Korean businesses and politicians over its protectionist trade policies, citing how Korean businesses have supported Biden's CHIPS Act, primarily designed to shore up U.S. vulnerabilities in semiconductors, with the world's memory chip duo _ Samsung and SK _ announcing multi-billion-dollar investment plans on U.S. soil.

"The level of impact from the passage of IRA and CHIPS Act on Seoul-Washington relations won't be huge as these legislations are more about industrial policies. However, the point of concern is that it called into question the value of Seoul's most significant alliance," a senior trade ministry official to former President Moon Jae-in told The Korea Times in a telephone interview.

"Despite large-scale investment commitments, top South Korean businesses and Yoon administration officials are now voicing questions as to whether they could be able to trust the U.S. The controversy regarding the IRA illustrates the fact that Korean businesses and politicians feel like they are being mistreated," he added.

Protectionist policies, US midterm elections

Seoul's concerns over rising U.S. tech protectionism extend beyond the IRA.

As seen by South Korea's backing of the CHIPS Act, the Yoon Suk-yeol government has been working closely with the Biden administration to deepen bilateral economic cooperation in areas where Seoul has strengths.

U.S. President Joe Biden speaks about federal response efforts for Hurricane Ian at the Roosevelt Room of the White House on Sept. 30, 2022. AP-Yonhap

But as the global economic order undergoes reconfiguration with advanced economies pursuing economic nationalism, Yoon's economic and trade policy teams need to expand the scope of collaboration, according to business executives and government officials here.

"Our internal analysis has shown that there should be an acceleration in the division of the global economy into competing economic blocs over the next few years. Such an expected trend would result in greater friend-shoring between like-minded countries. This also means that trade relationships will be reshaped with countries they are politically in sync with because governments are set to avoid focusing supply in countries and regions that are politically unstable," said a senior executive at one LG Group's technology affiliate. "If necessary, South Korea should increase the level of its cooperation with the EU and other countries to better challenge U.S. protectionist trade policies."

Within that context, one option for the South Korean government is to file an official complaint with the World Trade Organization (WTO). But filing such a complaint over the IRA alone won't have substantial backing, according to experts.

"It's very unlikely that the Biden administration will rectify IRA-related issues before the U.S. mid-term elections in November, because the passage of the IRA is aimed at appealing the Biden administration's initiatives to build up a pro-labor government," said a source in Washington by telephone.

The source added there is expected to be a continuation of working-level talks regarding Seoul's concerns in the process of enforcing the IRA. "No visible progress will be seen until the outcome of the midterm elections on Nov. 8," he said, adding Russia's invasion of Ukraine, rising tensions in the Taiwan Strait and the U.S.-China tussle are encouraging Biden administration officials to pursue Trump-style nationalism as foreign policy.

Over 80 percent of Americans consider inflation to be an extremely or very essential issue for the federal government to handle. But less than 30 percent of Americans approve Biden's management of the recent jump in the cost of living, a recent Monmouth University poll found.

Increasing lobbying activities, common voice

Just like their U.S. market shares, lobbying by South Korean businesses there is also on the rise.

According to data provided by Open Secret, a non-profit political watchdog, the amount of total spending on lobbying that the Korea's top four conglomerates spent rose from $5.83 million in 2020 to $9.83 million in 2021.

A Korean national flag, left, and a Samsung corporate flag, right, flutter outside the company's headquarters in southern Seoul on October 7, 2022. AFP-Yonhap

Samsung spent $3.72 million on lobbying last year, Hyundai Motor $1.95 million, LG $1.72 million and SK $2.5 million. During the first half of this year, the collective spending by Samsung, LG, Hyundai and SK for lobbying activities in the United States stood at $4.21 million.

Representatives at Samsung, LG, SK and Hyundai said because each of their stakes and employment numbers grow in the United States, it's becoming essential for them to increase their presence in Washington.

Also, an increasing number of sectors will be viewed as national security priorities over the next few years by EU member countries. Like the U.S., the EU's European Chips Act also stresses what is considered as a national security priority as more EU members grow increasingly tech dependent.

Because the Act is also aimed at making the EU more self-sufficient and will include priority order mechanisms for supply resilience during shortages, big South Korean businesses are asked to closely work together with EU governments to narrow differences and focus on possible common challenges in advance, government officials and experts said.

"As the Biden administration is pushing for the renaissance of U.S. manufacturing by pursuing a 'friend-shoring' strategy, companies which already have massive operations in the U.S. have no options but to spend more for lobbying activities because they are available to legislators to provide any specifics that are helpful for U.S. politicians," according to an industry executive. Samsung, LG Energy Solution and Hyundai operate massive semiconductor, battery and vehicle manufacturing plants in various U.S. states.

A lawmaker with the ruling party said South Korean businesses should speak with a common voice with other industry players.

"There are lots of issues that industry players have in common when pursued. If Samsung Electronics, for example, shares policy interests with other U.S. chipmakers, then Samsung can form a united front with one voice for mutually interested issues to U.S. legislators," the lawmaker said.

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