[New York Diary] Biden's "Victory for America"... South Korea's 'Economic Alliance' Faces Diplomatic Test

[Image source=AP Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] "It is a victory for the United States." This was the assessment made by U.S. President Joe Biden after signing the Inflation Reduction Act (IRA) last month, which focuses on climate change response and energy security. This legislation is regarded as the greatest achievement and political victory since President Biden took office. Immediately afterward, the national approval rating recovered to the 40% range, and the Democratic Party is accelerating efforts to capitalize on this momentum for the midterm elections.

The problem is that this "victory for the United States" has backfired as an "electric vehicle disadvantage" for its ally South Korea, especially the Korean automobile industry. Both the South Korean government and the industry, which has suddenly faced blocked electric vehicle export routes, show clear signs of bewilderment. Bloomberg News reported that "there is strong backlash in South Korea to the Inflation Reduction Act, to the extent that it is being called a 'betrayal,'" adding, "Despite Korean companies announcing large-scale investments in the U.S. one after another, this measure was enacted." The Global Times, the English edition of China's Huanqiu Shibao, reported that "the U.S. stabbed South Korea in the back by passing the Inflation Reduction Act." This all reflects the current state of the alliance just three months after the South Korean and U.S. leaders amicably declared an "economic alliance."

The U.S. Inflation Reduction Act includes a provision offering up to $7,500 in tax credits to electric vehicle buyers. However, because the benefit is limited to electric vehicles that are finally assembled in North America, all electric vehicles produced entirely in South Korea by Hyundai Motor Group are excluded, sparking controversy over discrimination. Criticism has also arisen that this violates the principles of national treatment and most-favored-nation treatment under the Korea-U.S. Free Trade Agreement (FTA) and the World Trade Organization (WTO).

In South Korea, there are even strong reactions describing it as being "stabbed in the back." This is seen as the reality of the Korea-U.S. economic alliance, which seemed to enter a honeymoon phase following President Biden’s visit after the inauguration of the Yoon Suk-yeol administration. In particular, considering that since President Yoon’s inauguration, South Korea has largely accepted the U.S.’s explicit demands that carry a "China exclusion" message, including participation in the U.S.-led Indo-Pacific Economic Framework (IPEF) and the "Chip4" alliance (South Korea, U.S., Japan, Taiwan), the situation is all the more bitter. Moreover, Hyundai Motor Group, considered the biggest victim of the law’s implementation, announced a large-scale investment plan exceeding $10 billion during President Biden’s visit to South Korea last May.

What is even more bitter is the U.S. response. The South Korean government hastily dispatched a delegation to the U.S., and the recent Korea-U.S.-Japan security chiefs’ meeting, which was an opportunity to demand strong solutions from the U.S., ended without significant results. In this process, the image of the U.S. emphasizing cooperation with allies under the pretext of anti-China economic security just a few months ago was nowhere to be found. Instead, Jake Sullivan, the U.S. National Security Advisor, left a questionable remark saying, "The Inflation Reduction Act seems to have many positives for South Korea." On the same day, President Biden issued a statement saying, "In the future, we will manufacture key components such as electric vehicles, semiconductors, and optical fibers in the U.S." This seems to foreshadow that additional blows to South Korea could come at any time under the pretext of reviving domestic manufacturing.

To resolve the electric vehicle disadvantage, the South Korean government, National Assembly, and industry are desperately sending delegations to the U.S., but it currently seems difficult to expect meaningful results. For President Biden and the Democratic Party, who face the midterm elections in November, it would also be difficult to discuss amending or postponing the implementation of the Inflation Reduction Act, which is their greatest legislative achievement. In this situation, there is no clear justification or reason to exempt South Korea alone.

Ultimately, what remains is diplomatic capability. It is time to make every effort to secure an exemption even after the midterm elections. President Yoon himself needs to meet President Biden at the U.N. General Assembly in September to seek a breakthrough. The diplomatic capability of the Yoon Suk-yeol administration toward the U.S., which has declared strengthening the Korea-U.S. alliance as its top priority, is truly being put to the test.

This content was produced with the assistance of AI translation services.