Author: Choong Yong Ahn, Chung-Ang University
South Korean President Yoon Suk-yeol set the tone of South Korea’s new economic diplomacy by declaring he would ‘build a nation that espouses liberal democracy and ensures a thriving market economy’. Yoon’s commitment in his inaugural address on 10 May 2022 to ‘work together with like-minded nations that respect freedom’ is particularly important for Seoul to navigate turbulent economic competition in the Asia Pacific amid an ever-intensifying US–China rivalry.
At the ROK–US summit in Seoul on 21 May 2022, the leaders of both countries agreed to upgrade their security alliance into a global comprehensive strategic alliance. This calls for South Korea to take a more active role on the global stage to promote the common values of freedom, green growth and a level playing field for international trade and investment.
The previous Moon administration leaned heavily towards China after fully supporting Chinese President Xi Jinping’s ‘Chinese dream’. But South Korea’s geoeconomic strategy has historically taken a dichotomous approach after China’s rapid economic rise — balancing its security alliance with the United States with its economic ties with China, its largest trading partner. South Korea relies heavily on China to acquire key intermediate goods and essential materials such as electronic equipment, chemicals, rare earth and urea water, to complete many of its supply chains.
The long-cherished ROK–US security alliance and lenient US market access have greatly benefited South Korea’s economic rise. New ROK–US relations now ensure a ‘high-tech alliance’ that is essential for South Korea to maintain its international competitiveness.
The alliance secures trade for cutting-edge semiconductors, electric vehicles and batteries. The pandemic and the ongoing Ukraine war have shown that national security is directly linked to economic security. Indeed, the resilience of interconnected supply chains is ultimately secured through the removal of supply side bottlenecks.
As the first concrete step towards a comprehensive ROK–US alliance, Yoon declared South Korea would formally join the US-initiated Indo–Pacific Economic Framework (IPEF) to address supply chain resilience, digital trade, anti-corruption and decarbonisation. The 13-member framework aims to become a high-standard rule-making process for international trade and investment without offering direct market access to the United States.
New disciplinary rules are good news for East Asia because they signal increased US engagement with East Asian economies. South Korea should play an active role in making the IPEF a durable, credible and open architecture for countries willing to adhere to rules-based economic connectivity.
A stronger South Korean alliance with the United States will also revitalise trilateral security cooperation between South Korea, the United States and Japan against North Korean nuclear threats. Actively reviving the trilateral alliance will help mend South Korea–Japan relations, starting with the removal of sensitive trade restrictions. The two countries became formally connected in January 2022 through the Regional Comprehensive Economic Partnership (RCEP) — an agreement that will expedite the mending process.
Yoon’s new economic diplomacy with the United States is likely to make China uneasy. On ROK–China relations, Yoon has emphasised the need for mutual respect and principled diplomacy to achieve pragmatic win–win outcomes. This is unsurprising given that East Asian economies prefer to avoid choosing between their relationship with the United States and China.
This dilemma could be mitigated by upgrading the China-driven RCEP to match the high-standards of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This would mean addressing the issues of state subsidies, labour conditions, intellectual property rights, cross-border data transfers and environmental concerns.
China has already submitted a formal application to join the CPTPP, but South Korea has not yet applied although approved an entry plan. Joining the CPTPP would enable deeper South Korean integration into the regional trade architecture. All CPTPP members have a veto over new membership applications, so China will need to carry out domestic reforms to meet the high standards of the CPTPP to ensure ‘competitive coexistence’ with the United States.
Yoon’s domestic economic agenda is a challenging feat to achieve. South Korea needs to tackle everything from the prospects of stagflation, mounting household and national debt, and record youth unemployment. These issues are largely inherited from the previous administration’s income-led growth policy and COVID-19, and were aggravated by the prolonged Russia–Ukraine war.
In this landscape, Yoon’s highly desirable pro-growth agenda of cutting taxes and deregulation needs to deal effectively with inequality. Yoon may run into strong opposition from the majority Democratic Party of Korea with policy slogans for pro-labour and equitable distribution in the National Assembly if he ignores this issue.
After Yoon’s party snatched a landslide victory in the local elections, his political support should be enough to push for a US-aligned economic strategy while maintaining trade engagement with China. Still, upgrading the ROK–China FTA on the basis of ‘mutual respect and principled diplomacy’ remains his big test.
Choong Yong Ahn is Distinguished Professor at the Graduate School of International Studies, Chung-Ang University.
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