Key Takeaways

-      Korea’s investment relationship with the US has grown significantly, surpassing China, highlighting the centrality of the ROK–US economic alliance.

-      Effective incentives, coordinated industrial roadmaps, and long-term policy certainty are essential to sustain investment and strengthen bilateral economic ties.

-      Balancing strategic alignment with the US while respecting economic realities regarding China is crucial for a stable, future-oriented partnership.

(Introduction) Contrary to the conventional notion encapsulated in the slogan “security with the United States (US), economy with China,” Korea has in fact maintained a close investment relationship with the United States rather than China for a recent decade. Between 2000 and 2015, Korea’s greenfield investment, direct investment excluding acquisitions of existing firms, averaged about $2.6 billion annually in both countries.[1] This pattern diverged after 2016, when tensions over the deployment of the THAAD anti-ballistic missile defense system strained Korea–China relations. In that year, Korea’s greenfield investment in China amounted to roughly $2.3 billion, or just 38.7 percent of its greenfield investment in the US. By 2024, Korea’s greenfield investments in the US has surged to $14.8 billion which was 9.3 times the level directed to China. Today, the ROK–US economic alliance, reinforced by deepening investment ties, stands at another turning point under the Trump 2.0 administration. Today, the ROK–U.S. economic alliance, backed by these deepening ties, stands at another turning point under the Trump 2.0 administration. At this pivotal moment, the ROK-US economic alliance now stands at a crossroads, with several challenges and tasks ahead.

(Rethinking Tariffs and Incentives) First, it is essential to recalibrate the Trump 2.0 administration’s trade policy to better reflect economic realities. While one of the administration’s core objectives is to rebuild the US manufacturing base and create domestic jobs, the current tariff structure does not appear to be the most effective way of achieving that goal. A wide range of critical intermediate goods, such as steel, machinery, and other manufacturing materials, remain subject to Section 232 tariffs or reciprocal tariffs. As of July 2025, the effective tariff rate on Korean industrial supplies and materials, as estimated by the US Census, stood at 10.3 percent, with the potential to rise further under additional Section 232 measures. These restrictions have already contributed to rising construction and operational costs, discouraging new investment. In effect, the tariff regime resembles pressing both the accelerator and the brake at the same time: rather than moving the economy forward, it risks damaging the broader system.

Incentives work better than penalties. Korea’s share of US greenfield investment reached an unprecedented 38 percent in 2022 and 24 percent in 2023, driven largely by favorable business conditions and targeted support.[2] The trend is not unique to Korea. Morris Chang, the founder of TSMC, once estimated that producing a chip would cost 50% more in the US than Taiwan.[3] To cover up these differences, CHIPS and Science Act provided a cash grant around 10% of the project cost, 25% refundable tax credits, which was recently revised upward to 35%. So far, it has been successful in attracting semiconductor investments poured in the United States. Forcing unilateral transfers from Korea may provide Washington with a short-term GDP boost, but it will not produce lasting gains in competitiveness. It is time to design a coordinated incentive policy and recalibrate tariffs to support a more business-friendly environment.

(Building an Action Plan Together) Second, both sides must develop a deliberate action plan to strengthen economic ties. The Trump 2.0 administration seeks to reassert US leadership in sectors such as shipbuilding, nuclear energy, pharmaceuticals, and AI infrastructure. In industries requiring complete reconstruction, it is highly unlikely that the US can establish the necessary manufacturing base on its own, making Korea an indispensable partner to complement US weaknesses. At the same time, persistent uncertainty in strategic sectors remains a serious obstacle. Building a manufacturing base will take at least a decade, and investors need assurances that favorable conditions will be maintained over the long term.

To fully leverage Korea’s potential and manufacturing capabilities while reducing uncertainty in US policy direction, the two countries should move now to co-develop a roadmap for rebuilding the US industrial base. This roadmap should clearly set out major milestones, specify the policies and contributions required from each side, and identify opportunities to bring other partners into the initiative. Building on the Korean government’s proposal to “make American shipbuilding great again,” the Washington and Seoul should develop similar roadmaps across other sectors, and publish them openly to ease investor uncertainty. Hopefully, Trump 2.0 administration’s industrial ambitions overlap well with President Lee Jae-myung’s economic strategy and foreign policy perspective. By capturing the complementary strengths of both administrations, the two countries can craft a detailed action plan to secure another decade of robust economic alliance.

(Respecting Ambiguity) Third, it is essential to move beyond a binary choice between the US and China. Since the first Trump administration, the US has steadily expanded economic sanctions on China across multiple fronts, including export controls, investment screening, government procurement restrictions, import bans linked to forced labor, nonimmigrant visa restrictions, and investment incentive limitations tied to “foreign entities of concern.” Given bipartisan backing, Washington’s measures against China will be difficult to roll back anytime soon. Many of these measures employ secondary sanctions, effectively compelling other countries to align their economic activities with US national interests. While most countries share some degree of concern about China, such alignment can only be sustained up to a certain threshold.

What determines that threshold? Comparative market size is a decisive factor. In 2024, the US accounted for 14 percent of global imports, 26.3 percent higher than China’s share of 11 percent.[4] National security concerns may make countries more receptive to US tariffs and sanctions, but economic realities cannot be ignored. An unprecedented rise in effective US tariff rates, approaching 20 percent, could disrupt the balance, potentially overturning the relative positions of the US and China in global import markets. Such a shift risks triggering a domino effect of countries drifting away from US-led strategies toward China. To prevent this, Washington should provide space for partner countries to incorporate their own perspectives on China within the broader framework of economic alliances.

(Conclusion) In its list of 123 National Agendas, the Korean government outlined plans to develop the Korea–US relationship into a “future-oriented comprehensive strategic partnership (CSP),” deliberately placing “future-oriented” ahead of the conventional CSP label. Beyond security, trade, and advanced technology cooperation, the government seeks expand mutual benefits and secure balance within a comprehensive framework with the US. To make such a partnership sustainable, it must rest on long-term, mutually beneficial agendas.

This commentary began with 2016 when the Korea’s investment paths in the US and China diverged. China’s retaliatory economic measures, including bans on group tours, restrictions on chartered flights and cruises, prohibitions on Korean cultural imports, tightened customs inspections on cosmetics, and heightened tax scrutiny of Korean firms,[5] steadily eroded trust and economic ties. As in 2016, when Korea was directly confronting China, it is difficult to imagine Korea’s future without an ironclad economic alliance with the US. Yet we must acknowledge that a mutually prosperous future is not guaranteed.