[The Editors' Verdict] Instead of Criticizing the IRA, Let's Fix Korea's Subsidy Policy First

Korean Trade Chief and Industry Minister Visit U.S. in Response to IRA
Major Countries Shift to Economic Nationalism for Future Industries
Korea Must Use This Moment to Reform Subsidy Policies
Zero and Low-Emission Vehicle Adoption Targets Also Need Revision

[Asia Economy Reporter Lee Cho-hee] Due to the United States' Inflation Reduction Act (IRA), high-ranking Korean officials have been flying to the U.S. day after day. After trusting the alliance and pouring millions of dollars in investments into the U.S., they feel as if they have been slapped in the face and are trying to somehow overturn the situation.

However, what the government needs to worry about is not just selling tens of thousands more electric vehicles in the U.S. market. Regardless of the U.S. law, major countries around the world have long turned to economic nationalism for future core industries such as batteries and semiconductors. In response, we must also begin to establish a turning point for the domestic electric vehicle industry.

In 2016, China used its "battery standards" as a weapon to stop subsidies for electric vehicles equipped with Korean-made batteries. At that time, domestic analysts believed that even if excluded from the Chinese market, losses could be offset by expanding into markets such as Europe and the U.S. There was also optimism that despite China's protectionist policies, it would take a long time for Chinese companies to enter the global market. Looking back now, that was not the whole story. Chinese battery and electric vehicle companies have rapidly grown under the protection of their government and are now confident enough to compete with Korea. They achieved rapid growth in a short time by going through numerous trials and errors in their domestic market. Using electric vehicle subsidies as a representative non-tariff barrier, they successfully fostered their domestic industry. Instead of struggling to lower U.S. subsidy policies, it is time for us to take this as a case study for nurturing our own domestic industry.

Most electric vehicles sold domestically are imported cars. Tesla is naturally included, but Chevrolet's Bolt is also officially an imported car. It is not only the U.S. or China that are to blame. European countries such as Italy, Germany, and France, as well as Japan, are actively protecting their domestic electric vehicles. France lowered the maximum subsidy limit to favor Renault, a domestic company mainly producing small electric cars. Germany, which has strengths in internal combustion engines, has set plug-in hybrid subsidies higher than other European countries. China does not provide subsidies for electric vehicles not produced domestically at all.

A few years ago, when controversy arose over Tesla sweeping up Korea's electric vehicle subsidies, the government hastily set a price cap for subsidy eligibility. Electric vehicles priced below 55 million KRW received 100% subsidies, those priced between 55 million and 85 million KRW received half (50%), and vehicles priced above 85 million KRW were not eligible for subsidies. This was an emergency measure to curb Tesla's Model 3.

The situation is different now. Not only Tesla but also European brands such as Audi, Volvo Polestar, and BMW have released many electric vehicles, and there are cases where they cleverly circumvent this standard by adjusting options. This means that simply limiting prices makes it difficult to block the derivative offensive of imported electric vehicles. Meanwhile, if the government focuses solely on "expanding electric vehicle adoption" without distinguishing between imports and domestic finished vehicles, a significant portion of the increased eco-friendly vehicle share will inevitably be filled by imports.

Restricting subsidies targeting specific countries can trigger trade disputes. For this reason, the automotive industry points out the need to protect the industry by expanding subsidy policies tailored to the characteristics of domestic electric vehicles, as seen in Japan. Japanese electric vehicles have a device that allows battery power to be used externally, and the Japanese government provides about 200,000 yen more in subsidies for electric vehicles with this feature. This is an openly preferential policy for domestic electric vehicles.

The Ministry of Environment is said to be releasing next year's electric vehicle subsidy guidelines in a few months. So far, there has been no word that the industry is in close consultation with the government. We hope the new administration will quickly listen to the voices of those in the field.

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