▶ The Republic of Korea and India, as pivotal players in the Indo-Pacific, have much to gain from strengthening their trade and investment partnership.

▶ The partnership would not only enhance bilateral economic resilience but also reinforce their roles as key players in the Indo-Pacific region, capable of navigating the complexities of a potentially protectionist U.S. administration.

▶ By addressing shared vulnerabilities, enhancing supply chain resilience, and fostering cooperation in emerging sectors, both nations can build a robust economic alliance that not only withstands external shocks but also drives sustainable growth in the region.

The Republic of Korea and India, two prominent economies in the Indo-Pacific region, share a growing partnership rooted in mutual economic interests and strategic complementarities. As both nations navigate an increasingly complex global landscape characterized by geopolitical tensions, trade disruptions, and the need for sustainable development, their collaboration assumes greater importance. In this article, we will examine the opportunities and challenges in enhancing Korea-India trade and investment ties, emphasizing the critical role of bilateral cooperation in addressing shared vulnerabilities and unlocking economic potential.

The analysis explores key themes central to the partnership, including supply chain resilience, digital trade, and sectoral collaboration in areas such as green energy and technology innovation. By leveraging each other’s strengths—the Republic of Korea's technological expertise and India's expanding manufacturing capacity—the two countries are well-positioned to foster a robust economic alliance. Additionally, this article underscores the necessity of targeted incentives, policy harmonization, and deeper integration into regional frameworks to sustain long-term growth and competitiveness.

The Necessity of a Better Trade and Investment Environment

First, we need to examine why the two countries need to cooperate with each other in terms of trade and investment. It is simply because bilateral cooperation between the Republic of Korea and India is essential to mitigating shared vulnerabilities. Both nations, as key players in the Indo-Pacific region, face similar risks arising from geopolitical complexities and economic uncertainties. These challenges necessitate the creation of a more robust trade and investment framework to safeguard mutual economic interests.

The Indo-Pacific region's geopolitical dynamics have become increasingly intricate, marked by trade tensions such as the U.S.-China conflict and the Russia-Ukraine war. For both Korea and India, the impacts of such tensions are significant, particularly for open economies deeply integrated into global markets. The Republic of Korea’s active engagement in Free Trade Agreements (FTAs) and regional economic initiatives, coupled with India's gradual but steady movement toward market liberalization, highlights the vulnerability of both nations to external shocks. For instance, during the pandemic, India and the Republic of Korea witnessed substantial disruptions in trade flows, with India's GDP growth plunging to -6.6% in 2020, while the Republic of Korea's growth contracted by -0.9%.

Open economies like Korea and India are particularly vulnerable to various shocks, exacerbated during periods of geopolitical turmoil. A pertinent example is the tariff hikes during the Trump administration, which disrupted global supply chains and heightened production costs for firms, particularly small and medium enterprises (SMEs). SMEs, the backbone of both the Indian and Korean economies, are disproportionately affected by such volatility.

As the likelihood of geopolitical risks increases—particularly with the possibility of a new Trump administration—having reliable trade and investment partners is crucial. The Republic of Korea and India share no significant historical or political conflicts, presenting a unique opportunity for deeper collaboration to enhance resilience against external shocks.

Key Areas for Enhanced Cooperation

1) Supply Chain Resilience

India's growing dependence on Chinese imports underscores the urgent need for diversification. The Republic of Korea, a global leader in manufacturing and technology, presents a strong alternative. Korean exports predominantly consist of intermediate goods, characterized by advanced technology, lower carbon footprints, and adherence to international labor and environmental standards. These attributes align well with global regulatory trends, offering India a reliable source of supply chain diversification.

Bilateral trade between Korea and India surpassed $28 billion in 2023. Korean investments in India, totaling over $8 billion, include significant contributions from leading firms such as Hyundai, Samsung, and LG. By leveraging India's manufacturing prowess and Korea's technological strengths, the two nations can jointly enhance supply chain resilience and reduce dependence on volatile trade routes.

2) Digital Trade Agreement

Digital trade agreements could unlock significant potential for both economies by facilitating seamless e-commerce, ensuring secure data sharing, and strengthening intellectual property (IP) protections. Reports by the World Economic Forum highlight that harmonized digital trade standards can boost global GDP by 1.5% by 2030.

India's rapid digitalization—evidenced by the rise of e-commerce platforms like Flipkart and Myntra—demonstrates the transformative power of digital trade. In 2022, India's digital economy contributed approximately 6% to its GDP. Korea, with its advanced digital infrastructure, can offer valuable expertise. Including digital trade provisions in the renegotiation of the Comprehensive Economic Partnership Agreement (CEPA) can set the stage for robust cooperation in this domain.

3) Incentives for Investment

Targeted incentives, such as India's Production Linked Incentive (PLI) scheme, could drive investments in green energy, digital infrastructure, and healthcare. However, feedback from Korean firms indicates that the current structure of the PLI scheme may be too rigid for smaller firms to participate effectively. Adjusting these programs to accommodate diverse firm sizes could attract more foreign direct investment (FDI). For instance, India’s renewable energy sector, valued at $80 billion in 2023, is expected to grow exponentially, presenting lucrative opportunities for Korean investors.

4) Leveraging RCEP for Regional Integration

While India opted out of the Regional Comprehensive Economic Partnership (RCEP), there remains scope for cooperation in promoting regional standards and practices. Korea’s RCEP membership can act as a conduit for Indian businesses seeking access to RCEP markets, while India’s strategic influence can complement Korea’s regional trade ambitions. Collaborating on issues such as digital trade norms and supply chain resilience can further enhance their roles as leaders in the Indo-Pacific.

Korea-India Relations After the Recent U.S. Election

The potential re-election of Donald Trump as U.S. President could significantly influence the Korea-India relationship, particularly in the context of global trade dynamics and supply chain strategies. Trump's previous administration prioritized "America First" policies, which included renegotiating trade agreements and imposing tariffs that disrupted global supply chains. Such measures directly impacted open economies like the Republic of Korea and India, necessitating greater diversification and bilateral collaboration to mitigate external risks.

For the Republic of Korea and India, the possibility of renewed protectionist policies under a Trump administration emphasizes the urgency of enhancing mutual trade and investment ties. Both nations could leverage their complementary strengths to counteract the challenges posed by U.S.-centered trade policies. For instance, India’s growing role as a manufacturing hub and Korea’s expertise in advanced technology present an opportunity to build resilient supply chains. Strengthening bilateral cooperation, especially in sectors like semiconductors, renewable energy, and digital trade, can reduce dependency on volatile global markets.

Given these dynamics, fostering a robust Korea-India partnership can serve as a stabilizing factor amidst geopolitical uncertainties. The partnership would not only enhance bilateral economic resilience but also reinforce their roles as key players in the Indo-Pacific region, capable of navigating the complexities of a potentially protectionist U.S. administration.

Conclusion

All in all, the Republic of Korea and India, as pivotal players in the Indo-Pacific, have much to gain from strengthening their trade and investment partnership. By addressing shared vulnerabilities, enhancing supply chain resilience, and fostering cooperation in emerging sectors, both nations can build a robust economic alliance that not only withstands external shocks but also drives sustainable growth in the region.