South Korea’s anger about discriminatory treatment by the United States against Korean electric vehicle makers is highlighting the difficulty Washington faces in getting even its closest allies on board with its macroeconomic plans for Asia.
US law passed last month provides a tax credit of up to $7,500 to buyers of assembled electric vehicles in North America. Analysts say the measure, part of a larger Inflation Reduction Act, aims to cut China out of the supply chain and boost US production of electric cars.
But in doing so, the bill also wiped out the tax credits for dozens of electric vehicles manufactured overseas, making them more expensive for American buyers. Among the hardest hit are South Korea’s Hyundai and its ally Kia, which is second only to Tesla in sales in the US electric vehicle market.
Inflation Reduction Act may have little effect on inflation
South Korean trade officials and politicians erupted after the law was passed, calling it a betrayal of the principles of the World Trade Organization as well as the US-South Korea Free Trade Agreement, which they say is a trespass against each other’s imported products. prohibits discrimination of any kind.
“The US is changing from a custodian of free trade to a dismantling of international trade norms,” said an editorial in the left-leaning Hankyreh newspaper. “In short, [U.S. President Joe] Biden’s ‘Build Back Better’ is no different [former U.S. President Donald] Conservative Jongang Ilbo Says Trump’s ‘Make America Great Again’
Some South Korean media have also questioned whether Seoul should respond by reconsidering its participation in US-led regional economic initiatives, such as the Indo-Pacific Economic Framework (IPEF) or the semiconductor “Chip 4” coalition, which both is considered important. America’s efforts to compete with China
At a briefing on Tuesday, South Korean Trade Minister Ahn Duk-gyun said the trade dispute should be treated separately from Seoul’s participation in multilateral fora, but acknowledged that disagreements could “shake confidence”. [U.S.-South Korean] business relationship only.”
South Korea’s dismay is broadly in line with many other Asian countries, which question whether Washington is as committed to free trade as it once was. While many US partners were disappointed with Trump’s 2017 decision to pull out of the massive Trans-Pacific Partnership (TPP) free trade deal, they are disappointed with Biden, who has continued many of Trump’s trade policies.
Doubts about US commitment
To address those concerns, the White House in May unveiled IPEF, a trade deal designed to provide a counterweight to China’s economic clout in Asia. 14 IPEF member states held their first talks last week; The US aims to end the talks by next November.
But IPEF differs from traditional free trade deals in that it does not provide greater market access or reduce tariffs – such areas are no longer seen as safe in the US domestic political context. Without such incentives, there may not be enough benefits for countries to agree to binding commitments in areas such as the environment and labor, according to the report From Center for Strategic and International StudiesWhich has surveyed the representatives of the countries involved in the IPEF negotiations.
The Biden administration has also indicated that the IPEF will not be submitted to the US Congress for approval, leading some to worry that it could be overturned by future US presidents.
During the IPEF rollout in May, Japanese Prime Minister Fumio Kishida said he welcomed an increase in US economic engagement in Asia and would support IPEF talks, but he preferred to re-engage the United States in the TPP, now known as the TPP. Known as CPTPP.
Another key component of Biden’s Asia strategy is Chip 4, an envisioned semiconductor supply chain partnership between the United States, Japan, South Korea and Taiwan.
Chip 4 is important to reduce China’s influence in the microchips field. But US partners, notably South Korea, have expressed concern that the initiative could lead to Chinese retaliation. Possibly reflecting that unease, South Korean officials often refer to the Chip4 group as a “consulting body” rather than a coalition.
South Korea’s dilemma
The Sino-US balancing act is particularly difficult for South Korea, which hosts about 28,000 US troops but relies on China as its largest trading partner.
South Korea’s conservative president, Eun Suk Yeol, who took office in May, has moved to expand his country’s economic and security ties with the United States – making the current trade dispute even more uncomfortable.
While the United States has agreed to negotiate with South Korea to reduce the impact of recent US legislation, that hasn’t held back a wave of South Korean criticism directed at both Yoon and Biden.
So far, the response has been mainly limited to furious newspaper editorials and statements of concern by business and government officials.
Jeongmin Suh, a professor of economics at Seoul’s Soongsil University, predicted that the dispute would not result in major anti-US protests, as US policy affects only a few major South Korean companies and may not be felt by average citizens.
But if not resolved quickly, the disagreement could result in diplomatic repercussions, analysts warn, as Seoul is filing a WTO complaint. Some voices have called for South Korea to take a more assertive stance in line with its growing economic and diplomatic influence.
“If Korea remains dormant, it may once again fall prey to the great powers,” read a recent Hankyoreh editorial. “Korea needs to break out of its ‘small country’ mentality and adopt a proactive posture.”
Lee Juhyun contributed to this report.