►  The US-China strategic competition has engendered a securitization of economic policy among major powers, leading to a fundamental reorganization of global supply chains with inter-state trust emerging as a critical determinant in economic relationships.

► The proposal to establish 'economic security agreements' with allies represents a timely and potentially constructive approach to creating a new global economic order, providing a framework for like-minded nations to coordinate their economic security policies while minimizing negative impacts on allies and partners.

► As the intensification of industrial and technological competition leads to a more fragmented global economic landscape, it is imperative to accept this reality while working to minimize its costs and collateral damage through feasible incremental solutions.

In the contemporary geopolitical landscape, characterized by intensifying strategic competition between the United States and China, nations worldwide are pursuing 'de-risking' strategies for their economic security. The advent of geoeconomic uncertainty has mainly precipitated a paradigm shift in how countries approach industrial and technological policies.

First, governments are increasingly adopting interventionist stances, exemplified by the implementation of "Reshoring" and "Friend-shoring" strategies. This is intensifying global competition in technology and industrial policies, including subsidy policies. Second, another salient feature of new economic landscape is the proliferation of bilateral and minilateral cooperation frameworks. Nations are prioritizing collaboration with trusted partners, a trend that is exacerbating the fragmentation of both technology R&D and trade.

The US-China strategic competition has engendered a securitization of economic policy among major powers. This shift in perspective has led to a fundamental reorganization of global supply chains, with inter-state trust emerging as a critical determinant in economic relationships. The paralysis of multilateral institutions such as the World Trade Organization (WTO) has further accelerated this trend, as nations increasingly structure their economic interactions around shared values and trust.

From the perspective of middle powers like South Korea, the pursuit of 'decoupling' by both the United States and China presents a particularly challenging scenario. The resulting instability in global supply chains poses significant risks to economies that have thrived on international trade and global value chains.

The United States has adopted a strategy of 'selective decoupling,' articulated by National Security Advisor Jake Sullivan as a "small yard, high fence" approach. This strategy aims to restrict China's access to critical scientific and technological domains, particularly in computing-related technologies, biotechnologies, and clean energy technologies. The rationale behind this approach is to maintain US technological supremacy in areas deemed crucial for national security.

China's response to this strategy has been characterized as 'asymmetric decoupling.' While pursuing policies of economic and technological self-reliance to reduce dependence on Western technologies, China simultaneously seeks to increase global dependence on its own economic ecosystem. This dual-pronged approach aims to maximize China's ability to weaponize economic interdependence in future geopolitical confrontations.

A growing body of research such as a recent report by the Center for a New American Security (CNAS)[1] exploring potential steady states in US-China relations is a welcome development. However, it is crucial to recognize that the efficacy of US strategic policy instruments may vary significantly depending on whether the ultimate goal is to maintain US hegemony or to induce fundamental changes in China's behavior and system.

Two critical considerations emerge from this analysis. First, there is a growing body of evidence suggesting that increased pressure from the United States may be counterproductive in achieving desired changes in China's behavior. The Xi Jinping administration has responded to external pressure by further centralizing political decision-making and prioritizing national security concerns over market-oriented economic reforms. This trend underscores the need for a more nuanced approach to engagement with China that balances competitive and cooperative elements.

Second, the absence of clearly defined principles and rules in this new economic order carries the risk of unintended consequences. Uncoordinated policy actions by individual nations may inadvertently harm like-minded countries rather than potential adversaries. This dynamic is particularly evident in the confusion and uncertainty faced by companies from allied nations in response to US policies aimed at countering China's technological advancement.

For countries like South Korea, whose key industries significantly overlap with the 'small yard' defined by US policymakers, this situation presents a pivotal challenge. The inclusion of advanced semiconductor chips and green technologies, such as electric vehicle batteries, in the US national security framework creates a complex operating environment for Korean firms that have been at the forefront of these industries.

In light of these challenges, the proposal to establish 'economic security agreements' with allies as espoused in the CNAS report represents a timely and potentially constructive approach to creating a new global economic order. Such agreements could provide a framework for like-minded nations to coordinate their economic security policies while minimizing negative impacts on allies and partners.

As the intensification of industrial and technological competition leads to a more fragmented global economic landscape, it is imperative to accept the reality of this fragmentation in certain sectors while working to minimize its costs and collateral damage. The era of solving complex geoeconomic challenges through singular, all-encompassing solutions like the WTO system appears to be waning. In its place, a more pragmatic approach focused on feasible, incremental solutions is needed.

If the revival of a truly global, inclusive economic system proves unattainable in the near term, countries within trust-based blocs should at least start discussing the introduction of new norms and institutions that can minimize damage from each other's policies. This approach should aim to preserve as much trade and dialogue as possible between blocs while working to restore and reinforce free trade principles within like-minded groups in order to mitigate the negative externalities of divergent national policies.

Nations like South Korea, which have been significant beneficiaries of the post-war liberal economic order, have a particular responsibility and interest in spearheading these efforts. By taking a proactive role in shaping new economic norms and institutions, these countries can help ensure that the benefits of free trade and economic cooperation are preserved to the greatest extent possible in an increasingly complex and fragmented global landscape. The upgrading of international norms and institutions is not merely a desirable goal but an urgent necessity in the face of rapidly evolving geoeconomic realities.