[New U.S. Security Strategy]③ 'New Trade Order Excluding China'... "Countering China with Allied Economic Power"

U.S. Recognizes 'China Threat' in Top Strategic Document
Reorganizing Trade Order to Exclude China Around Allies
America First Policy Adds Burden to Industry
"Detailed Response Strategies Needed by Industry and Technology"

Another pillar of the United States’ security strategy is “economic security.” Analysts predict that the US will intensify pressure on South Korea by making the restructuring of trade order to exclude China a core agenda item. This is because the US is demanding policy changes from its allies to counter China, emphasizing trade relationship rebalancing and reindustrialization through tariffs. There are calls for South Korea to respond by distinguishing between industrial and technological supply chain structures, in order to prevent the fallout of US-China tensions from being shifted onto Korea.

According to the recently released National Security Strategy (NSS) report, the highest-level strategic document of the Trump administration, the US has defined China not merely as a competitor but as a “structural risk distorting the global trade order.” The report also bundled together objectives such as reducing the trade deficit and blocking external dependence on key supply chains. By presenting “trade relationship readjustment” as a core task of economic security, the document is seen as more hardline than previous strategic papers.

US Pushes for China Containment by Allies, Led by ‘Trade Readjustment’

The US administration stated in the report, “We prioritize trade relationship readjustment, aim to reduce the trade deficit, and will end dumping and unfair practices,” adding, “We will counter predatory economic practices to avoid reliance on supply chains for critical minerals, core materials, parts, and finished products.” To achieve this, the US plans to promote reshoring and pursue reindustrialization using tariffs and new technologies. Although no specific industries were mentioned, as advanced sectors like semiconductors and batteries are classified as key supply chains, the impact is expected to be directly felt by the Korean industrial sector.

The NSS report calls for trade rebalancing with China, premised on expanding supply chain cooperation between the US and its allies. The message is to reduce trade with China and restructure supply chains around the US and its allies. This can also be interpreted as pressure to “invest in the US as much as you have in China.” To support this strategy, the concept of “economic bloc formation” was also proposed. The report notes that the US economy is valued at $30 trillion, and the combined economic power of its allies amounts to $35 trillion-together, nearly half of the global economy. “South Korea, Japan, Europe, Australia, Canada, and Mexico must use their combined economic power to contain China,” the report says. Ostensibly, the justification is to “ensure that allied economies are not subordinated to any competing force,” but the core message is that “countries like South Korea should adopt trade policies that help reorient the Chinese economy toward domestic demand.” In essence, this is explicit pressure to restructure supply chains according to US design.

This is analyzed as stemming from China’s “beggar-thy-neighbor” policies. Regardless of intent, policies such as subsidies aimed at reviving Chinese industry are said to have sacrificed the industries of neighboring countries. South Korea can expect positive effects in sectors such as semiconductors, batteries, and automotive electronics, where China’s entry into the US market is structurally restricted. In markets like Europe, which must align with US policy, Korean products are being considered as alternatives.

Jang Sangshik, Director of the International Trade and Commerce Research Institute at the Korea International Trade Association, said, “In the past, when China grew, the global economy grew together, but now it has a negative impact worldwide. Moreover, China’s control over supply chains for rare earths and other materials has heightened US concerns.” He added, “As the relationship between South Korea and China has shifted from complementary to competitive, attention should be paid not to the decline in exports to China, but to the effect of reduced competition in other markets.”

Growing Burden of US-First Policy Amid Hopes for Spillover Benefits

Donald Trump, President of the United States, and Xi Jinping, President of China, are seen leaving the meeting room while conversing after concluding the US-China summit at Naraemaru Protocol Office, Busan Gimhae Air Base, last October. Photo by Yonhap News Agency

However, the market gap created by the exclusion of Chinese products is unlikely to immediately translate into increased exports for Korean companies. Additional policy demands, such as ensuring local investment and supply chain transparency, may follow. This is why there are concerns that the US-first policies underlying its containment of China will increase the burden on businesses.

Lee Taekyu, Senior Research Fellow at the Korea Economic Research Institute, criticized, “The US’s demand for decoupling from China while maintaining current tariff policies is a contradictory stance.” He explained, “China already has supply chains across global markets, and even the US cannot achieve full decoupling from China. Even if allies unite, it will be difficult to halt China’s rise, so support measures to reduce dependence on China should come first.”

Above all, he pointed out that the US’s double standards conflict with the logic of supply chain stability. Lee noted, “Whereas in the past, competition was based on price, quality, and efficiency, now it has become a complex equation that must also consider building multiple supply chains and policy risks. Korean companies have no choice but to face increased burdens due to US policies.”

Recently, the US hosted the “Pax Silica” summit and launched an economic alliance to contain China in the artificial intelligence (AI) and semiconductor supply chains. Eight countries-South Korea, Japan, Singapore, the Netherlands, the United Kingdom, Israel, the United Arab Emirates (UAE), and Australia-agreed to cooperate on critical minerals, energy, semiconductors, and AI infrastructure. For the Korean government, there is a cautious atmosphere, as demands for export controls on China could increase the burden.

Narrowing Options: “Refined Responses by Industry and Technology Needed”

Analysts say that as the US’s China-containment strategy becomes more concrete, South Korea’s options will inevitably become narrower and more sophisticated. In a structure where South Korea is required to participate in the “economic bloc” as an ally while also bearing the burden of US-first policies, it is necessary to respond with detailed strategies that consider the interests of each industry. In this context, finding a balance point, given the reality that it is difficult to sever exchanges with China, is seen as a top priority.

Jung Ingkyo, former Director-General for Trade Negotiations, predicted, “Soon, the US will impose requirements for intermediate goods inspections on exporting countries, and the rules of origin under the Korea-US Free Trade Agreement (FTA) will be replaced by China decoupling certificates.” He advised, “Rather than fully aligning with the US stance, South Korea should respond by diversifying supply chains and linking with allies. While participating in supply chain restructuring, it is important to maintain a balance by continuing exchanges with China, taking de-risking into account.”

Even if the government seeks a balanced strategy with de-risking in mind, the actual burden will inevitably be felt first at the business level. As US-China regulatory and trade regimes unfold differently by industry, companies are required to make concrete decisions on how to separate and operate their business structures.

Kim Mina, Team Leader at Deloitte Consulting, said, “The strategic flexibility that Korean companies have maintained is becoming less sustainable due to the intensifying security and technology competition between the US and China. In this environment, realistic reviews are needed to determine to what extent US- and China-related operations can be separated and managed to control risks and secure opportunities.” She emphasized, “This is not about choosing sides, but about clearly distinguishing the different regulatory and supply chain structures by industry and technology and designing the scope of response accordingly.”