South Korea laments rising tensions with US over high-tech trade – Financial Times | Jewelry Dukan

The abrupt withdrawal of the Biden administration’s subsidies for South Korea’s electric vehicles threatens to erode confidence in the US, the Seoul trade minister has warned, as trade tensions between the allies mount.

Seoul is furious that South Korean-made Hyundai electric vehicles are barred from generous excise tax credits included in the Inflation Reduction Act, a landmark US climate, tax and spending law.

The uproar highlights the impact of Washington’s efforts on US allies to boost domestic manufacturing in high-tech sectors, including electric vehicles and semiconductors, as competition with China intensifies.

In an interview with the Financial Times, Ahn Duk-geun recalled Joe Biden’s visit to South Korea in May when US President and Hyundai Chairman Chung Eui-sun planned a US$5.5 billion investment.

“President Biden himself said, ‘Thank you, Chairman Chung, I will not disappoint you’ — that was the exact statement, and it was widely circulated in Korea,” said Ahn, a professor of international trade law who took office shortly before Biden’s visit.

“Then when this new law was passed and signed into law by President Biden and [it became clear that] that this company was discriminated against, this situation triggered emotional and political repercussions.”

South Korean Trade Minister Ahn Duk-geun: “We don’t want to aggravate the problem with similar retaliatory measures” © South Korean Trade Ministry

The Inflation Reduction Act signed by Biden last month provides tax credits of up to $7,500 for electric vehicles assembled in the US, Canada and Mexico. However, Hyundai’s Georgia plant is not scheduled to start production until 2025 – until then it will not be eligible for the subsidies.

“This has caused major problems for Hyundai Motor Company, which has decided to make a huge investment based on the current agreement,” said Ahn, who suggested that “not many [US] Congressmen and Senators were fully aware of all the ins and outs of the IRA.”

Ahn stressed that US officials recognized Hyundai’s predicament and were cooperating positively with their Korean counterparts to try to “minimize the damage.”

“We don’t want to make the problem worse by taking similar retaliatory measures,” Ahn said, echoing South Korea’s position that left open the possibility of action at the World Trade Organization.

“But you never know, if the situation gets really serious, we’re also flexible.”

Ahn also acknowledged disagreements between Seoul and Washington over US restrictions on the transfer of state-of-the-art manufacturing capacity to semiconductor plants in China.

“Our semiconductor industry is very concerned about what the US government is doing today,” Ahn said, citing the recently enacted Chips Act, which bans recipients of US federal funds from expanding their capacity for advanced chips in China for 10 years or to improve .

“Obviously we share the US government’s concerns about the top end of semiconductor products because that’s where the danger is [that they could be] used for military purposes,” said Ahn.

“At the lower end are semiconductor products that are unrelated to such purposes, and we thought those were for general commercial purposes,” he added.

“The problem lies in the gray area where the US government is trying to encroach into what used to be broader trade areas, and the Korean government sometimes has disagreements about the demarcation.”

Like many export-oriented countries, South Korea is increasingly caught up in the intensifying competition between Washington and Beijing.

“Like companies in many other countries, Korean companies are trying to reduce their dependence on the Chinese market,” Ahn said.

He cited Beijing’s “arbitrary interference in companies” policy as well as its “dual-circulation” import substitution policy as the main factors that prompted foreign companies to reduce their exposure to China.

He added that over the decade the “trade structure” between South Korea and China will “change” and move down the value chain as the exchange of sensitive technologies becomes increasingly controlled.

“Perhaps trading volume will increase,” Ahn said. “But perhaps there will be an increase in trade in low-value products, while trade in high-value, technologically advanced products may decline.” He said Korea is aiming to expand ties with the US and the EU in order to reduce its trade dependency on China reduce.

Ahn said that while South Korea and China remain interested in the possibility of a trilateral free trade agreement with Japan, those efforts have been hampered by Tokyo’s opposition over unresolved political tensions with Seoul over Japan’s historic occupation of the Korean peninsula.

He added that the Japanese opposition has also hampered South Korea’s bid to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, an Asia-Pacific trade deal that does not include the US or China.

“It is a very important issue for us and we have already spoken to all CPTTP members except Japan, which is still very reluctant to speak to us unless we resolve these diplomatic issues,” Ahn said . “The official stance of the Japanese government is still very adamant.”

Video: Cars, companies, countries: the race for electric cars

Leave a Comment