"If US Interests Are Opposed, There Will Be No Semiconductors or Batteries Either" [Korea-China Supply Chain Diagnosis - Roundtable]

Supply Chain Analysis Report ⑤ Roundtable Discussion
'IPEF Launch and South Korea's Survival Strategy Amid Major Supply Chain Shifts'
"The US Leading Advanced Technology Excludes China... South Korea Has No Choice"
Short-term Shock to Our Economy... In the Long Run, Market Expansion from China to Indo-Pacific and Opportunity for Technological Leap
Low Possibility of Full Retaliation Like Second THAAD but Must Endure China Risks... Urgent Need for Supply Chain Diversification

[Asia Economy Sejong=Reporters Haeyoung Kwon, Dongwoo Lee, Junhyung Lee] The Indo-Pacific Economic Framework (IPEF), a U.S.-led economic cooperation initiative targeting China, has been launched. The die has been cast. In the midst of the U.S.'s 'anti-China' supply chain restructuring centered on advanced industries such as semiconductors, batteries, and biotechnology, the strategy of 'security with the U.S., economy with China' (Anmi Kyungjung) is no longer a viable card. Experts advise that South Korea should closely cooperate with allies who share the values of liberal democracy and market economy, expand the Indo-Pacific market base, and seek advanced technology cooperation and supply chain diversification.

Professor Tae-yoon Sung of Yonsei University’s Department of Economics said at a roundtable hosted by Asia Economy on the 9th, themed "South Korea’s Survival Strategy Amid Supply Chain Upheaval Following the Launch of IPEF," that "Joining IPEF means entering the global network in advanced technology," and added, "The U.S., which leads the advanced technology sector, does not allow sharing technology with countries (China) that it cannot cooperate with, so we have no choice but to cooperate with the U.S."

IPEF, which started with the intention of excluding China amid U.S.-China hegemonic competition, may pose a significant burden on the South Korean economy in the short term. However, if South Korea does not participate in the U.S.'s supply chain restructuring plan that holds core advanced industry technologies, it will not be able to maintain market dominance in semiconductors or batteries. For example, mass production of semiconductors is impossible without U.S. equipment. Ultimately, experts predict that the U.S. will form a supply chain led by itself in advanced industries, while China will remain at the level of a mid-tier industrial country that increases U.S. welfare, resulting in a role division between the U.S. and China.

Professor Jaeseung Lee of Korea University’s School of International Studies said, "Looking at the overall trend of the global economy, strategic ambiguity is no longer possible," and added, "From a mid- to long-term perspective, South Korea must consider which side to stand on to survive longer in the global market." He explained that joining IPEF is not a choice but a necessity to maintain the Korea-U.S. alliance and manage allied countries in the current international situation. Kyungyup Cho, head of economic research at the Korea Economic Research Institute, said, "IPEF is based on a strategy to exclude China, focusing on strategic materials," and predicted, "If exports of strategic materials to China decrease, our companies and industries will suffer short-term damage, but in the mid- to long-term, it could be an opportunity to expand the Indo-Pacific regional market to replace China."

The Indo-Pacific region’s share in the global economy is gradually increasing. Looking at the ASEAN region, the scale of global direct capital investment was $731 billion from 2016 to 2020, a 30.4% increase compared to 2011-2015. The scale of direct investment to China ($698.9 billion) was also surpassed. The 'ASEAN shift' in the global supply chain is accelerating due to U.S. export restrictions to China and production base shutdowns in China caused by COVID-19. The Indo-Pacific region accounted for 47.1% of South Korea’s total exports in 2020, surpassing China’s 31.8%. Imports from the Indo-Pacific region also significantly exceeded China, with 44.7% compared to China’s 22.9%.

Experts unanimously agreed that IPEF should be used as an opportunity to strengthen technological cooperation with the U.S., which possesses overwhelming core technologies in semiconductors, artificial intelligence (AI), and next-generation communications. Professor Sung said, "It is necessary to strengthen cooperation with the U.S. in the technology sector through IPEF," and added, "It seems to be particularly helpful in areas related to energy and infrastructure." Director Cho predicted, "IPEF is an opportunity to access the world’s top technology led by the U.S.," and said, "By strengthening technological cooperation with the U.S., we can use this as an opportunity to advance our technological capabilities."

While the possibility of full-scale retaliation from China, like the second THAAD or the urea solution incident, is considered low, experts pointed out that the risks must be endured. Professor Lee said, "We must anticipate and prepare for China’s retaliatory measures," and added, "It is realistically impossible to protect all industries." Professor Sung said, "It is an overinterpretation to view IPEF as an anti-China line and expect retaliation from China," but added, "However, we must firmly express our support for free trade in response to China’s backlash and view China as an existing major market and the Indo-Pacific region as a new market to strengthen cooperation."

There was also cautious speculation that IPEF could become a lever against China. Director Cho analyzed, "Although China declared a 'semiconductor rise,' its actual technological capabilities fall far short of leading countries," and added, "In sectors where South Korea has an advantage, such as semiconductors, China may actually be in a disadvantageous position." Professor Lee emphasized, "We cannot completely exclude the huge economic entity that is China," and said, "In the long term, we need to establish a new relationship with China and consider how to leverage IPEF to create a more favorable situation for us."

Diversifying supply chains for raw materials heavily dependent on China, such as batteries and bio-materials, was also cited as an urgent task. This is because China’s 'resource weaponization,' such as with rare earths, could be repeated at any time. Researcher Hanggu Lee of the Korea Automotive Technology Institute said, "Temporary supply chain issues may arise due to the anti-China coalition, but countries have already prepared mid- to long-term countermeasures," and added, "Even the U.S. is expanding mineral supplies from allies such as Australia and Canada." Director Cho emphasized, "We must reduce high dependence on China for raw materials and diversify supply chains by partnering with countries that share the same values within the economic security community of IPEF."