Benefits and risks

Trilateral economic solidarity is a double-edged sword

The global rivalry between America and China is an economic war, given that the G2 must avoid military clashes at any cost.

So, it was natural that the leaders of the U.S., South Korea, and Japan put equal emphasis on security and economy in their summit at Camp David last week.

The "trilateral supply-chain solidarity" also makes good economic sense. Together, the three countries account for one-third of the global GDP. Moreover, America's pioneering source technology, Japan's superior equipment, and Korea's manufacturing prowess create an ideal synergy in semiconductor and other high-tech industries.

Korea, the smallest economy and the least advanced technological power among the three, could be the trilateral solidarity's biggest beneficiary. Significantly, the agreement allows Korea to maintain gaps with rapidly chasing China in its traditional industrial strongholds.

As always, however, benefits accompany risks.

The first and foremost threat is China's possible economic retaliation. After Camp David, a Chinese government mouthpiece warned against an "economic rift" among Beijing, Seoul, and Tokyo. Korea heavily relies on overseas markets, unlike the U.S. and Japan, with large domestic markets. This country relies on exports for half of its economic growth, and China still buys nearly one-fifth of Korea's exports.

And China's economic retaliation is long and persistent. Beijing only recently lifted its ban on Korean cultural products, including travel, imposed in 2016 when Seoul deployed a U.S. missile defense system. Japan also yielded to China's pressure two decades ago when Beijing restricted the export of rare-earth metals amid a territorial dispute over an island in the South China Sea. It was reassuring for the three allies to agree to cope jointly with the shortage of certain items and their suppliers.

A more fundamental problem for Korea than Beijing's retaliatory moves is its rapid loss of advantages in flagship sectors and a failure to find new growth engines. The trilateral summit also provided a ray of hope in this regard. The trilateral accord called for building a cooperative platform in various high-tech sectors, such as semiconductors, batteries, bio, space, artificial intelligence, and quantum computers. At stake is how Korea secures cutting-edge technology in these fields to beat China and other competitors and emerge as the hub of global high-end manufacturing.

Despite the recent spate of bad economic news on China, most countries find it challenging to de-risk, let alone de-couple, from the world's No. 2 economy. That explains why high-level officials from the U.S. and Japan have been visiting Beijing to protect their economic interests despite cooling diplomatic ties. The only exception seems to be Seoul.

The Yoon Suk Yeol government's economic indifference to China is hard to understand, given Seoul is most vulnerable to Beijing's countermoves. Korea can no longer depend on America for security and China for the economy. Still, Seoul must continue to walk on a tightrope in the economy.

Yoon has bet all on the U.S. in terms of both security and the economy. But no other country acts like that and chooses instead to divide its eggs into several baskets. Other leaders do not sacrifice their nations' economic interests to defend ideological values. Yoon thinks he can mend economic ties with Beijing, as Korea hosts high-level visitations from three Northeast Asian countries this year.

It is doubtful whether China thinks that way. The size and level of economic exchanges between Seoul and Beijing are small and low compared to the U.S. and Japan. Of course, China also needs Korea economically, including in the semiconductor sector, where Korea holds a 25-percent stake worldwide. But that also requires skillful trade diplomacy.

The Yoon administration should do at least two things in this regard.

First, it must persuade Washington not to tie up the hands and feet of Korean chipmakers and automakers under the pretext of building a new supply chain. Yoon should have done that at Camp David. Second, it should implement bolder industrial policies, including regulatory reforms, to bring Korean and foreign businesses back to this country.

It all depends on how skillfully Seoul uses the double-edged sword of the trilateral economic partnership.

Source: Yonhap News Agency