Politics Foreign Affairs Culture Fellows Program

Will the Chips Fall in Place for the US and South Korea?

The two nations share the prospect of a mutually beneficial relationship.

Hyundai Motor Co. October Sales Down from Last Year
Workers work on an engine assembly line for a Hyundai vehicle at the Asan plant on November 2, 2006 in Asan, South Korea. (Photo by Chung Sung-Jun/Getty Images)

There has been an odd, inverted symmetry between South Korean and U.S. leadership in recent decades. This has continued into the present leaderships of both countries, but has not prevented the emergence of tensions that could stand in the way of mutual economic benefit. 

South Korea’s conservative leaders have trended toward globalization and a firm, but not bellicose, position on North Korea—understanding the outbreak of conflict would be devastating for all concerned—and have thus gotten on well with American Democrats. The administrations of Barack Obama and Lee Myung-bak finalized the KORUS FTA in 2010, for instance, and Park Geun-hye complied with the Obama team's wishes for a 2015 deal with Japan on thorny historical issues. 


When Republican presidents take up residence in the White House, however, Korean presidents have tended toward progressivism, favoring much more focus on the affairs in their part of the world and a much lighter touch on North Korea. George W. Bush did not see eye to eye with the progressives Kim Dae-jung and Roh Moo-hyun on outreach to North Korea, and anti-Americanism surged. Donald Trump and the progressive Moon Jae-in administration blamed each other for the collapse of negotiations with North Korea in 2019. Negotiations over financial support for the alliance were also fraught, and South Korea abandoned previous cooperation with Japan that the U.S. had promoted.  

With the return of the Democrats to the White House in 2020, and on the South Korean side the election of center-right Yoon Suk Yeol in 2022, it appeared that this sort of comity had returned, and that cooperation on economic and security affairs would deepen. Biden may be a different kind of Democrat than Obama or Clinton, placing a greater emphasis on rebuilding domestic manufacturing than their administrations, but Yoon is also a different kind of conservative; whereas previous leaders, even pro-U.S. administrations, hedged between the Americans and the Chinese, Yoon appeared even more willing to side with the U.S., willing to risk relations with Beijing.  

Electric vehicles threaten to undo all of that. 

The nature of the dispute centers around the KORUS FTA, which in 2010 lowered barriers to the U.S. market for Korean carmakers. With the passing of recent legislation in the U.S. (namely the Inflation Reduction Act over the summer), the Biden administration’s attempt to have it both ways—to position itself as the leader on setting trade rules for Asia while also reshoring production of high-end technology—appears to have backfired, wiping out tax credits for South Korean E.V. makers and uniting Korea’s conservative and progressive presses in opposition. 

“The U.S. is morphing from a guardian of free trade into a disrupter of international trade norms,” wrote the leftist Hankyoreh newspaper. 


“In essence, Biden’s ‘Build Back Better’ is no different from [Trump’s ‘Make America Great Again],” the conservative Joongang Ilbo opined. 

As of now the dispute is ongoing, and Yoon’s headline-making recent trip to the U.S. certainly gave voice to Korean frustrations, but did little to bring the two sides together on the topic. 

For some it is a source of irony to see South Korea objecting to U.S. industrial policy, when industrial policy does much to explain Korea’s importance to the U.S. as an ally. Once a deeply impoverished nation with few exports aside from light industries such as textiles, the developmental dictatorship that preceded the 1987 transition focused on channeling U.S. aid into internal investment in the creation of heavy industries and high-end goods. In 1961, South Korea appeared to be a money pit that American leadership at times considered abandoning due to the perceived hopelessness of defending it from North Korean takeover. 

By 2000, after the Asian Financial Crisis had subsided, South Korea’s gross national income per capita was 20 times that of the North’s, with its own successful shipbuilding, chemicals, and steel industries, with Kia and Hyundai cars competing with Japanese and U.S.-built cars in America, and with Samsung Electronics continuing its steady climb up the hi-tech value chain. While not the semiconductor powerhouse that Taiwan’s TSMC is, Samsung is a substantial and growing player in that market. For that reason Korea was chosen, along with Taiwan and Japan, as part of the Chip 4 alliance with the U.S., and its support was thus sought early for the Indo-Pacific Economic Framework. Given its broadly defined but sparsely detailed nature, the IPEF needed such support to accomplish its objective: to demonstrate that the U.S. would not take a back seat to the PRC in crafting trade rules for the region while not sacrificing U.S. jobs to foreign competition. 

South Korea signed on to both Chip 4 and IPEF, just as it did the KORUS FTA, and now its political and business leaders feel betrayed. For Yoon Suk Yeol, who was barely elected in March, faces a hostile (and possibly veto-proof) legislature and is probably much more popular among mainstream US policy analysts and pundits than among the South Korean public, the dispute may feel especially personal, and like one that may sink his agenda prematurely if not addressed. 

The winners in such a scenario would be South Korea’s progressives, not American workers.

MAGA with Democratic Characteristics?

For President Biden, the Inflation Reduction Act won’t be undone easily. Not only is it a signature piece of legislation that followed months of political defeats, it makes good on his promise to restore American manufacturing even as the U.S. stands with democratic allies in Asia and the rest of the world. Biden, after all, may have spent much of his career as a centrist Democrat, but also frequently talks up his status as an Irish-American politician and support for unions and their role in his agenda.

And yet South Korea may be too important of a partner not to placate, forcing Biden’s team to scramble for loopholes in his domestic manufacturing plan. 

One could say that South Korea is now in position to return a favor, having benefited greatly from America’s globalist trade policy since the end of the Cold War. Thanks to the U.S. market, Korea’s premier conglomerates such as Samsung, L.G., and Hyundai grew exponentially. Today, several large, allied economies are contributing to former President Trump’s “Make America Great Again” vision: reviving American manufacturing and infusing capital into America’s neglected towns. The Republic of Korea is one of them, investing heavily in middle America. Of course, this investment is not for American populist economic reasons but because of global market incentives. 

What has changed since the Trump years is the extra nudge to set up plants in the U.S. rather than Mexico. For example, Samsung is planning to build a semiconductor fabrication unit for $17 billion in Taylor, Texas. This fab will develop processors for smartphones, 5G, data centers, high-performance computing, and artificial intelligence platforms. This is a result of generous tax incentives. Earlier, Texas had offered 90 percent tax breaks for 10 years. With the proposed plant the state and the federal government could sweeten the deal. Samsung can avail around $3 billion in incentives through the CHIPS Act. 

With TSMC’s own plans to manufacture in the U.S., homegrown Intel, and Samsung’s investment, the American South and Southwest look to benefit from the diversification of the chip supply chain away from East Asia. Notably, Korean conglomerates invest broadly in new age technologies. Battery America, a subsidiary of S.K. Group conglomerate of Korea, manufactures batteries in middle America. 

In a semi-rural stretch of Georgia between Atlanta and Greenville, South Carolina, a colossal plant runs 24/7 manufacturing lithium-ion battery cells for the Ford-150 lightning. Paying a minimum wage of $18/hour, the plant is emblematic of the revival of American manufacturing. Based on news reports, the conglomerate is just getting started with America. They have planned investments in Tennessee and Kentucky to manufacture lithium-ion battery cells for Volkswagen and other automobile manufacturers. 

With L.G., Samsung, and S.K. Group investing in manufacturing units in southern and southwestern America, the free-trading nation is contributing to America’s economic populism. However, as mentioned earlier, tensions between free traders and populists—perhaps even within the same U.S. administration—have emerged and the ongoing tussle over the subsidies offered in the Inflation Reduction Act tests the alliance, at least on the economic front.   

While Yoon is a populist of a different stripe than MAGA Republicans, his administration certainly shares America’s skepticism toward China. Given that China is the largest market for Korean enterprises, he is going against the tide. However, his politics might not trump economics, especially if Biden’s legislative “wins” cost Korean conglomerates their two largest markets: China and the U.S.  

Like the Biden administration, U.S. populists might also find it difficult to disentangle America from East Asian commitments. 

One can believe, as President Trump did, that the PRC represents a serious challenge for the United States while being wary of adding to the U.S.’s military burdens. PRC supremacy over trade routes in Asia would pose a considerable problem for a U.S. accustomed to the hi-tech that rare earth minerals fuel, especially as Asia is home to the overwhelming majority of such minerals’ reserves. It would be especially problematic for Beijing to firmly establish itself as a trade hegemon before the U.S. builds up its capabilities as a manufacturer of hi-tech goods, a process that, while underway, has much more room to grow. South Korea’s manufacturing prowess in the technological sphere can help. 

One can also question whether Washington’s past and present defenses of South Korea were truly in the interests of the United States, while also recognizing where it can fit into the emerging bipartisan consensus. That consensus is that, after generations of U.S. policy geared toward raising standards of living for other countries to ensure stability and prove the mainstream view on liberal democratic governance correct, it is now time to boost the wages of America’s working class as well as its stature as a manufacturer, especially of high-end tech that will one day be at risk due to the PRC’s territorial ambitions. 

To the extent that South Korea is willing to extend its expertise in the manufacturing of cutting-edge technology—from semiconductors to E.V.s—to American shores, both Republicans and Democrats should be willing to extend special treatment to its manufacturers. Thus, assuming the provisions of the Inflation Reduction Act survive a pending change of power in the U.S. House (and possibly Senate), granting a waiver to South Korean manufacturers may be in the U.S. national interest, conditional on them following through on plans to build facilities in jobs-hungry U.S. states and employ their workers. 

This is especially the case while South Korea has a president willing to work with the U.S. on this issue; by 2027 it may not.