"South Korea's Survival Strategy: Sustaining Alliances, Division of Labor, and Joining G7 Plus" [De-globalization? New Order!] ⑪

What Should Korea Do?
Our Solutions for the Changing Global Trade Order
Seeking Synergy Beyond Binary Choices
"Speak Up, but Maintain a Close Alliance with the U.S."
Restore and Strengthen Channels of Exchange with China
Export Diversificat

As the United States adopts a tariff policy based on reciprocity, the global trade order has entered a period of turmoil. For South Korea, which is highly dependent on exports, it is urgent to devise countermeasures. Experts believe that it is necessary to maintain close alliance relations with the United States while also continuing economic cooperation with China, such as in new industrial sector division of labor. They also suggest that South Korea should make its voice heard by establishing a multilateral order and cooperative framework. Alongside diversifying export markets, upgrading domestic industries to high value-added sectors was also identified as a key task.

Responding to the U.S.-China Bipolar System...Need to Diversify Exports to Emerging Markets

Experts recently interviewed by Asia Economy unanimously advised that efforts should be made to build cooperative relations not only with the United States but also with China. Their argument is that, as the United States and China each take the lead in different areas-finance and services for the United States, manufacturing for China-a bipolar system is emerging, and South Korea must respond accordingly. Rather than becoming trapped in an extreme binary choice, the focus should be on creating synergy in each area of cooperation.

Ku Kibo, Professor of Global Commerce at Soongsil University, explained, "If one side had a much greater share, we would choose that side, but both are significant." He continued, "Direct exports to China account for 20% of our total exports, and if we include those routed through Hong Kong, it exceeds 25%. The United States also has a high export share, and there is so much investment intertwined that we cannot pull out." He added, "The demand to choose one side comes from either the United States or China. We must maintain good relations with both."

A former high-ranking official in trade, who requested anonymity, said, "Countries like South Korea, the European Union, and Japan-our allies-try not to fall out of favor with the United States, even when it acts unreasonably." He added, "Being allies does not always mean relations are smooth. As seen in the recent Georgia incident, when there are issues, we must speak up, but we should still strive to maintain a close alliance with the United States." He also said, "With China, we should maintain an appropriate relationship-neither lacking nor excessive, but beyond reproach."

There are also opinions that a concrete cooperation model should be established with China in new industrial fields. Ji Mansoo, Senior Research Fellow at the Korea Institute of Finance, noted, "In the past, there was an ideal division of labor between Korea and China within the traditional manufacturing value chain. Now, we need to consider how to build a division of labor in new industries." He emphasized that in the process of establishing a new industrial division of labor, "it is necessary to learn from and interact with each other," and that "recovering the various points of contact that have been severed between Korea and China is essential."

It was also assessed that diversifying portfolios in emerging markets such as Southeast Asia and Latin America is necessary to disperse risk. In its report published in May, "The Impact of the U.S.-China Trade Dispute and Trade Policy Changes on the Korean Economy," the Korea Institute for International Economic Policy (KIEP) stated, "The government and research institutions should systematically collect and analyze information on the economy, politics, law, and consumer trends in emerging markets, and provide these services to companies." The report also emphasized, "To diversify export industries, we must strengthen the competitiveness of manufacturing and foster high value-added industries."

Cargo is stacked on the container ship docked at Busan Port.

Utilizing Multilateral Organizations Such as APEC Is Necessary..."South Korea Should Join G7 Plus"

Efforts to build a multilateral order to amplify South Korea's voice and solidify cooperative frameworks in the international community are also essential. Lee Siwook, President of KIEP, pointed out, "It is important for South Korea to cooperate not only with the EU but also with countries in similar positions, such as Japan." He further emphasized, "It is advantageous to join as many networks as possible where countries are gathering to uphold multilateral trade order without the United States, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)." He added, "Utilizing the Asia-Pacific Economic Cooperation (APEC) in the process of making our voice heard would be beneficial. The APEC summit to be held in Gyeongju at the end of October is a significant momentum, as South Korea is the host country." Notably, both U.S. President Donald Trump and Chinese President Xi Jinping are expected to attend this APEC summit, marking their first direct meeting in six years.

Given that the government has made joining the expanded group of the Group of Seven (G7 Plus) a key national agenda, experts advise that this should be actively pursued. Ji, the senior research fellow, said, "South Korea should join G7 Plus," calling it "a very rational and realistic goal." He continued, "To achieve this, we must consistently make our voice heard. Advocating for the free trade order and jointly calling for checks against unfair practices related to China not only serves our national interest but also builds national credibility."

Joining the 'Multi-Party Interim Appeal Arbitration Arrangement (MPIA),' a temporary appellate arbitration system under the World Trade Organization (WTO), is also under consideration. Since its establishment in 1995, the WTO has resolved numerous disputes, but its functions have been virtually paralyzed since 2020 due to the United States' refusal to participate. To address this, some WTO member countries-including the EU, Canada, Japan, China, and the United Kingdom-launched the MPIA that year. The intent is to increase arbitration agreements among MPIA member countries. While there are assessments that the MPIA has functional limitations, there are also opinions that South Korea should consider joining.

A trade policy expert, who requested anonymity, argued, "With the dispute settlement system within the WTO not functioning, even if a case is filed, no ruling is issued. While MPIA is necessary, joining it could bind us to the WTO system and limit our ability to pursue aggressive, state-led industrial policies." The expert added, "The countries with which we have had the most WTO trade disputes are the United States, India, and T?rkiye, none of which have joined the MPIA. We need to carefully consider whether joining the MPIA would be beneficial for us."