KDI "US-China Conflict Will Continue in Biden Era... South Korea Should Prioritize Joining CPTPP"

KDI Focus, International Trade Environment in the Biden Era and South Korea's Response Strategy

President-elect Joe Biden of the United States. (File photo)
[Image source=Yonhap News]

[Asia Economy Reporter Jusangdon] A national policy research institute has suggested that even after the inauguration of U.S. President-elect Joe Biden, conflicts between the U.S. and China will continue, and in response to the resulting changes in the East Asian global value chain (GVC), the Korean government should prioritize joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

On the 19th, the Korea Development Institute (KDI) published a report titled "International Trade Environment in the Biden Era and Korea's Response Strategy," which contains these insights.

Song Young-gwan, Senior Research Fellow at KDI, stated, "Biden's trade policy, aimed at containing China and strengthening a U.S.-centered GVC in future technology sectors, is likely to bring changes to the East Asian GVC, where Korea, China, and Japan are closely connected, especially in the electronics industry. To respond to these changes in the global trade order, Korea must pursue two policies: joining the CPTPP and attracting high-quality foreign direct investment (FDI)."

With Biden elected as the 46th President of the United States, interest in changes to U.S. trade policy has increased; however, Biden has yet to express specific positions on CPTPP participation or trade policy toward China. Song anticipates that Biden's trade policy will emphasize fair trade. He summarized the future direction of U.S. trade policy as ▲ multilateralism and adherence to international norms ▲ strengthening labor and environmental standards in trade agreements ▲ reinforcing a U.S.-centered GVC ▲ maintaining a tough stance toward China. Biden aims for free trade through multilateral cooperation and compliance with international norms but emphasizes that the U.S., not China, should play a leading role in establishing new international trade rules. While Biden's trade policy differs from Trump's in its respect for international norms and focus on environmental and labor issues, it shares many similarities with Trump's policy in terms of containing China.

Song noted, "However, considering that the current East Asian GVC is the result of over 30 years of trade and investment, these changes will not proceed rapidly." Nevertheless, he emphasized, "Given Korea's deep integration into the East Asian GVC, it is necessary to anticipate and prepare for the impact of changes in the East Asian GVC on the Korean economy."

He viewed the shift in China's economic growth strategy as a factor reducing China's share in the East Asian GVC due to trade contraction effects, such as decreased imports of intermediate goods and exports of final goods. The activation of the CPTPP, which excludes China, could be a major factor in transforming the East Asian GVC into a new form that includes ASEAN countries, due to trade diversion effects where China's intermediate goods exports and imports are replaced by those of other countries. Song said, "Joining the CPTPP is a very effective policy in terms of reducing dependence on China and expanding the trade landscape," adding, "In a situation where U.S.-China conflicts are expected to continue, Korea's accession to the CPTPP is expected to promote diversification of export markets and help alleviate dependence on exports to China."

Additionally, he advised that the Korean government actively pursue policies to attract high-quality FDI. Song stated, "Attracting high-quality FDI increases the investment necessary for Korea's sustained economic growth and can raise Korea's share in the new GVC. Korea should expand its market size through economic integration with other countries via free trade agreements (FTAs) and move toward enhancing the stability of domestic policies and systems."