Relations with U.S.-China

Strategic Competition between the US and China: Implications for Korea

► The indirect economic effects of the US-China trade war, which will impose an estimated $514 billion in losses on the global economy annually, should have little impact or possibly even positive effects on Korea.

► Korea will need to invest in cordial economic relationships with both partners, as well as support new multilateral institutions as forcefully as possible.

► Korea should join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and take full advantage of its recently concluded membership in the Regional Comprehensive Economic Partnership (RCEP).






The United States and China are both introducing policies to decouple their supply-chains for advanced industries, including semiconductors, large batteries, biotechnology and more.[1] Their political environments appear to be committed to sustaining this “technology war;” in the United States, few other issues could gather similar bipartisan support in Congress and agreement between Congress and the President. Technological decoupling will be especially hard on smaller countries that rely on trade with both the United States and China. South Korea (called simply Korea below) is a prime example.[2]


This note examines US and Chinese policies and Korea’s options. We argue that Korea will need to invest in cordial economic relationships with both partners, as well as support new multilateral institutions as forcefully as possible. It should join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and take full advantage of its recently concluded membership in the Regional Comprehensive Economic Partnership (RCEP). These institutions are steps toward multilateral governance of Asia-Pacific trade, the best framework for assuring Korea’s economic security.



Policy shifts in the United States and China


Competition between China and the United States has led both countries to conclude that domestic technological capabilities must be strengthened and supply chains should be made more secure. Due to these developments, as well as COVID-19 and related shocks, policy makers increasingly view international supply chains from the perspectives of resilience and national security rather than costs. Industrial policy and limited self-sufficiency have reappeared as national goals.


In the United States, the US Innovation and Competition Act, which devotes $250 billion over the next five years to support basic and technology-related research, has bipartisan sponsorship and easily passed the Senate with more than a two-thirds majority.[3] The House version of the bill is still being debated at this writing—there are significant differences, for example, on subsidies for semiconductor production and research—but the legislation is likely to pass. The Biden administration has also recently completed a major review of supply-chains, prioritizing semiconductors, batteries, critical minerals, and pharmaceuticals. With large investments and a domestic-technology focus, a new US industrial policy is taking shape.


This strategy also features extensive regulatory interventions. It continues some Trump policies, including “Buy American” provisions, the Export Control Reform Act of 2018 (ECRA), and the Foreign Investment Risk Review and Modernization Act of 2018 (FIRRMA). These laws restrict trade and foreign direct investment in the United States, especially from China and Russia, and particularly in “emerging technologies.” They also include “entity lists” of companies with which Americans cannot do business. They can reach beyond US borders by prohibiting even foreign companies that use US technology from doing business with sanctioned firms.


In China, significant existing subsidies for technology development are being increased and focused on core technologies. Nikkei Asia notes that China intends to spend $1.6 trillion through 2025 on next generation infrastructure, including 5G technologies.[4] It has prioritized basic research and development in semiconductor manufacturing, biotech, quantum computing, artificial intelligence, and autonomous mobility, while discouraging investments in consumer technologies such as gaming. China has responded to US export and investment controls with a similar Export Control Law, and to extra-territorial US export restrictions with a “blocking statute” that may ultimately impose penalties on companies that comply with US sanctions. Meanwhile, China is seeking to enhance its influence with Asian neighbors through the Belt and Road Initiative (BRI), RCEP and by applying to join the CPTPP.



Spillovers to South Korea


Among the world’s 27 countries with populations equal to or greater than Korea’s (51 million in 2021), only seven play a larger role in world trade. Korea’s outsized international importance results from an outward-oriented development strategy and any erosion of the multilateral trading system is potentially detrimental to Korea’s prospects. Korea is especially exposed to the trade war between the United States and China, its largest trading partners.


As we argue in a recent paper,[5] the indirect economic effects of the US-China trade war, which will impose an estimated $514 billion in losses on the global economy annually, should have little impact or possibly even positive effects on Korea. Korea will suffer from the general hit to global income, but it will benefit from displacing some Chinese products in US and other markets. However, Korea could suffer serious direct losses from the US-China trade war if one or the other country punishes Korea for taking sides in their conflict.


The China-US trade dispute is already exerting pressure on Korea to take sides, and both countries have demonstrated a willingness to use economic coercion. When tensions with China escalated over Korea’s decision to deploy the Thermal High Altitude Area Defense (THAAD) system in 2016, China retaliated with boycotts ranging from pop music to tourism and batteries, costing Korea an estimated $15.6 billion. The United States in turn demanded $5 billion annually to continue its military support and also threatened to withdraw from the US-Korea free trade agreement. President Trump then routinely bypassed Seoul in negotiations with North Korea. For now, skillful Korean summits with Presidents Xi and Biden have eased tensions, but they could flare up quickly.[6]



What can Korea do?


Korea’s strategic assets—geographical, technological, political—give the United States and China reasons to influence Korea, but also to keep their political demands in check. Maintaining this delicate balance will require, as it always has, sophisticated Korean strategies and diplomacy.


First, Korea will have to support America’s technological objectives. Since the United States is now focused on domestic supplies and Korean companies control key technologies, Korea can make big contributions by locating production in the United States. Five of Korea’s seven largest companies--Samsung, Hyundai, SK, LG and Kia—already have large factories there and some just announced intentions to make $40 billion of additional investments. To maximize the political impact of these investments, major public relations efforts will be also needed. All this involves costs and compromises. Even Korean companies cooperating with the United States were required to stop selling chips to Huawei in China, failed to receive US chips for their mobile devices, and face requirements to provide sensitive data to US authorities.


Second, despite China’s largely unfavorable image in Korea, Korea cannot afford to turn its back on this powerful and dynamic neighbor. China’s main objective for now is to keep Korea on the periphery of America’s Indo-Pacific security network. China also knows that Korean goods and technology transfers could fill gaps left by other countries. Wisely selected, these opportunities offer economic advantages for Korea and could enhance its political relations with China.


Third and most importantly, Korea should focus on multilateral approaches to minimize bilateral tensions. While the global trading system remains in disarray, new regional opportunities are emerging in the Asia Pacific through RCEP and the CPTPP. Korea is now considering joining CPTPP and is well advised to do so.[7] Membership would enable Korea to guide possible expansions of the CPTPP, for example, with negotiations that admit China, Taiwan, and/or the United States. Even before these large changes, RCEP and the CPTPP offer mechanisms and committees for solving practical problems in the region. In the long run, they offer hope for stable, inclusive, rules-based trade relations among Korea’s principal trading partners.











Michael Plummer has been Director of SAIS Europe since 2014. A SAIS Professor of International Economics since 2001 and the Eni Professor of Economics since 2008, he was Head of the Development Division of the Organization for Economic Co-operation and Development (OECD) in Paris from 2010 to 2012; an associate professor at Brandeis University (1992-2001); and Editor-in-Chief of the Journal of Asian Economics (Elsevier) 2007-2015 (currently Editor-in-Chief Emeritus). He was president of the American Committee on Asian Economic Studies (ACAES) from 2008 until 2015. A former Fulbright Chair in Economics and Pew Fellow in International Affairs at Harvard University, he has been an Asian Development Bank (ADB) distinguished lecturer on several occasions and team leader of projects for various organizations including the Association of Southeast Asian Nations, the United Nations, the OECD, the ADB, the World Bank, and the World Trade Organization. He has taught at more than a dozen universities in Asia, Europe, and North America. Professor Plummer has advised several governments on the Transpacific Partnership (TPP) negotiations and is member of the editorial boards of World Development, the Asian Economic Journal; and the Journal of Southeast Asian Economics (formerly ASEAN Economic Bulletin). He is author/co-author of over 100 journal articles and book chapters. His PhD is in economics from Michigan State University.

[1] For an overview of the tech war, see South China Morning Post (2021).

[2] Chung Min Lee, October 21, 2020, “South Korea is Caught Between China and the United States,” Carnegie Endowment for International Peace.

[3] Sidley, June 16, 2021, “The US Innovation and Competitiveness Act: Senate Passes $250 Billion Bill to Bolster Scientific Innovation and Compete with China,”

[4] Nikkei Asia, January 21, 2021, “China to Pump $1.6 Trillion into Tech Infrastructure through 2025,”

[5] Park, Cyn-Young, Peter A. Peter, and Michael G. Plummer, “The Economics of Conflict and Cooperation in the Asia-Pacific: RCEP, CPTPP, and the US-China Trade War,” East Asian Economic Review, Vol. 25, No. 3, September 2021, pp. 233-272.;jsessionid=5771E8314C7D3C7713A912E045076FD4

[6] Chung Min Lee, July 13, 2021. “Korea strategic Review: Is South Korea Going Global? New Possibilities Together with the Biden Administration.”  Carnegie Endowment for International Peace.

[7] Schott, Jeffrey J., July 2021. “RCEP Is Not Enough: South Korea also Needs to Join the CPTPP,” PIIE Policy Brief.


Peter A. Petri is the Carl J. Shapiro Professor of International Finance in the Brandeis International Business School. From 1994 to 2006 he served as the founding Dean and from 2016 to 2018 as the Interim Dean of the School. He is also a Non-Resident Senior Fellow at the Brookings Institution and its John L. Thornton China Center (Washington), and a Visiting Fellow at the Peterson Institute for International Economics (Washington). Petri has held appointments as Visiting Scholar or Professor at the OECD (Paris), Keio University (Tokyo), Fudan University (Shanghai) and Peking University (Beijing), and as a Fulbright Research Scholar and Brookings Policy Fellow. He has consulted for APEC, the Asian Development Bank, the Asian Development Bank Institute, the World Bank, the OECD, the United Nations and the governments of the United States and other countries. He is or has been a member of the editorial boards of the ASEAN Economic Bulletin, Journal of Asian Economics, Journal of East Asian Economic Integration and the Singapore Economic Review. He is active in US-Asia affairs and is a member of the Board of the U.S. Asia Pacific Council and a former Chair of the U.S. APEC Study Centers Consortium. Petri's research focuses on international trade, finance, investment and technological competition with a focus on the Asia-Pacific region. His work has been supported by the U.S. Departments of State, Education, and Health and Human Services, and by the World Bank, the United Nations and major foundations.