[Preview of US Midterm Elections③] Whoever Wins, 'America First' Accelerates... Impact on Korea

[Asia Economy New York=Special Correspondent Joselgina] South Korea's attention is focused on the U.S. midterm elections held on November 8 (local time).

Regardless of which party gains control of Congress, there is widespread assessment that the so-called "America First" policy is an inevitable step. It is explained that the Biden administration's prioritization of national interests, which has openly targeted China, could become even stronger than that of the previous Donald Trump administration. The 118th U.S. Congress, reshaped by this election, will convene in January next year.

The reason South Korea is paying closer attention to this midterm election than ever before is the recent "Made in US" policy being promoted by the Biden administration. The so-called "of America, by America, for America" supply chain restructuring is directly impacting South Korea's export-oriented economy.

Most notably, the "Inflation Reduction Act," which has emerged as a major issue not only in the domestic automotive industry but also in political circles, excludes South Korean companies such as Hyundai Motor and Kia by providing subsidies only for U.S.-made electric vehicles. Furthermore, the act stipulates that over 40% of the critical minerals used in electric vehicle batteries must be mined or processed in the U.S. or countries with which the U.S. has free trade agreements, and at least 50% of battery components must be sourced from North America. However, it is practically impossible to establish new production systems and supply sources that meet these U.S. standards within a short period.

Recently disclosed U.S. export controls on semiconductors and other technologies targeting China also increase management uncertainties for domestic companies. Samsung Electronics and SK Hynix, which operate production facilities in China, are allowed to use existing production equipment, but will need individual approvals from the U.S. government for future equipment. Additionally, the previously passed Chips and Science Act (CSA) includes a guardrail clause prohibiting companies receiving U.S. subsidies from investing in advanced facilities in Chinese factories for the next ten years.

Even after the election, the Biden administration's policy direction is expected to remain focused on countering China regardless of which party controls Congress. Although Democrats and Republicans frequently clash, there is no disagreement on the stance toward China.

President Biden is also expected to accelerate his America First approach to strengthen domestic support as he prepares for the next presidential election. Won Yeon-ho, head of the Economic Security Team at the Korea Institute for International Economic Policy, predicted, "In the U.S., ahead of the 2024 presidential election, the America First policy will continue until the second half of next year."

Ultimately, South Korea faces a situation where it must break through by enhancing its negotiation capabilities in U.S. policy. It has also become important to raise voices together with major countries such as those in Europe. A senior official from a Korean company operating in North America sighed, "Each company has no choice but to focus its lobbying capabilities in Washington," adding, "The more a company depends on the Chinese market, the greater the uncertainty and the narrower the room for maneuver."

There are also concerns that U.S. policies emphasizing reshoring could lead to decreased domestic investment and job losses.

On the other hand, some speculate that after the midterm elections, the Biden administration may seek to appease allies, which it has relatively neglected while focusing on domestic issues. For example, the Inflation Reduction Act might be partially revised or include detailed provisions reflecting the positions of allies such as South Korea.

Republican senior Representative Chris Smith recently stated at a Center for Strategic and International Studies (CSIS) seminar, "(This law) was a direct slap in the face to our friends in South Korea," and added, "It is necessary to amend parts of the law this year or next year." Earlier, the KOTRA Washington Trade Center also forecasted in an economic and trade report that after the midterm elections, the origin rules for electric vehicles in the Inflation Reduction Act could be somewhat relaxed through exemptions by sector or specific countries.

Regarding North Korea, no significant changes are expected after the midterm elections. The U.S. continues to keep the door open for North Korean nuclear talks while maintaining its stance that it will never recognize North Korea's nuclear weapons. Despite recent successive nuclear missile provocations by North Korea, diplomatic priorities have focused more on responding to Russia's invasion of Ukraine. However, if the traditionally hawkish Republican Party gains control of Congress, it may push the Biden administration to adopt a tougher stance on North Korea.