South Korea’s ‘US for security, China for economy’ strategy no longer working

As the EU is struggling to balance its economic and security interests amid US-China tensions, South Korea faces similar challenges in a much more accentuated way, requiring the country to take extraordinary care in devising its economic security strategy.

South Korea is an export-driven economy. The value of its exports in goods and services reaches 48% of GDP, nearly double the EU’s figure, which stands at 25%.

Moreover, while China has also become the EU’s most important trading partner measured by trade volume, this is even more pronounced for South Korea, which ships 23% of its exports to China. In comparison, China only buys 9% of the EU’s total exports.

At the same time, South Korea is heavily dependent on the US for security, relying on the “Mutual Defense Treaty” signed after the armistice of the Korean War in 1953.

Strategic ambiguity

No wonder, then, that South Korea pursued a strategy of “strategic ambiguity” along the motto of “security with the US, economy with China” according to an analysis written by Seungjoo Lee, a professor of political science and international relations at Chung-Ang University and member of the South Korean government’s advisory committee on economic security and foreign affairs.

Strategic ambiguity meant that South Korea would not speak out against China on topics that were important and sensitive for Bejing, like the oppression of Uyghurs in Xinjiang or the suppression of the opposition in Hong Kong.

“We try to stay away from the ideological aspect of the rivalry,” Taehyun Oh, a researcher at the Korea Institute for International Economic Policy (KIEP), told Euractiv.

However, this could only go so far. After purchasing a new US missile system to defend its airspace, South Korea came under pressure from China, which levelled economic sanctions against the country.

“This experience of economic coercion has led South Korea to adopt a more proactive economic security strategy,” Lee wrote.

Security over efficiency

As other trade-oriented powers, like the EU, South Korea is trying to diversify its trade relations and reduce vulnerabilities and economic dependence.

KIEP researcher Oh told Euractiv that, while Korean companies used to choose their supply chain partners based on their efficiency, they “now choose partners that are trustworthy, even if they might be slightly less efficient”.

And with security concerns overriding economic considerations, the South Korean government has chosen to stick more closely to the US.

For example, South Korea has started collaborating more closely with the US in the development and production of high-end semiconductors, a sector dominated by South Korean and Taiwanese firms.

As the US wants to deprive China of leading semiconductor technology, they initially wanted to force South Korean firms to refrain from producing semiconductors in China, but Seoul and Washington recently came to an understanding that would allow South Korean companies to keep their production in China.

Consequences

Had South Korean pulled out of China, Chinese retaliation would have been highly likely. And China holds leverage over South Korea as its biggest export market, but also as a source of critical raw materials that South Korean industry needs, be it for semiconductors or for batteries.

“It’s true that our economy and supply chain is very dependent on China, so we need to make a decision that minimises the risks,” Oh said.

“That means that we need to coordinate with like-minded countries, especially the United States, so rather than being aggressive about our economic security agenda, we need to be responsive,” he said, adding that Korea needed to take into account the strategies of other countries as well.

In 2019, a trade spat with Japan, which had imposed export controls on certain technologies headed for South Korea, drove this point home. One country’s economic security can be the other country’s supply chain risk.

The incident made South Korea take more proactive steps to secure its economic and technological sovereignty. In 2022, the government also designated 12 national strategic technologies and planned to invest around €20 billion in them over the coming five years.

Oh sees the Korean government focus on semiconductors, batteries, medical technologies and critical raw materials.

Mediator

But even if South Korea is able to pivot towards a stricter, more invasive economic security strategy, the country would rather not have the need for it in the first place.

Squeezed between two large powers, South Korea’s preferred outcome would be a reduction of international tensions, a wish it shares with the EU and other trade-focused players.

Oh voiced hope that Korea can use its in-between position to act as a mediator and advance the interests of middle powers like itself that prefer to keep the rules-based order as it is.

“Because if one country chooses to take extreme measures, the consequences could be irreversible,” Oh told Euractiv.

[Edited by Zoran Radosavljevic]

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