[Insight & Opinion] Intensifying U.S.-China Decoupling and South Korea's Dilemma

Published 27 Sep.2022 10:58(KST)

[Asia Economy] The United States and China are rapidly decoupling. This phenomenon is clearly evident across the entire political and economic spectrum, including advanced technology industries, investment, and finance, amid geopolitical confrontations. In the long term, it could usher in an era of two distinct global political-economic systems. Since this will significantly impact South Korea, careful responses are necessary.

First, examining the causes of this decoupling points to changes in the U.S. policy toward China. Over the past 40 years, the U.S. pursued an engagement policy expecting China to transform into a democratic nation, but the Uyghur and Hong Kong incidents occurred. Confirming the failure of the pro-China policy, the U.S. has adopted a bipartisan approach to pressure China.

A representative example of this change is the shift in the U.S. security policy toward Taiwan over the past 40 years, moving from strategic ambiguity to strategic clarity. Despite China's opposition, both Democratic and Republican lawmakers have visited Taiwan. The next cause can be found within China. Ahead of President Xi Jinping’s third term reappointment next month, China has issued several statements and policies that regard the U.S. as a systemic competitor. Since the 2015 announcement of “Made in China 2025” and Xi Jinping’s dual circulation policy, China has been aiming to reduce external dependence and build an independent platform for advanced technology, countering U.S. policies.

As U.S.-China decoupling deepens, we inevitably end up living in two separate worlds. This situation presents a dilemma for middle powers that have grown through trade with both countries. The reality is that middle powers cannot completely sever ties with either side despite the decoupling. In South Korea’s case, trade with China amounts to $300 billion, and with the U.S., $170 billion. Trade with China is heavily weighted toward raw materials and intermediate goods in traditional industries, while with the U.S., vital interests lie in future advanced technology sectors. The problem is that it is difficult to see South Korea as having the capability to mediate effectively between both sides. Therefore, the best option is to manage our conduct wisely. Practically, two approaches can be considered.

First, recognizing the limitations of resolving U.S.-China relations solely as a bilateral issue, we should revive and utilize multilateral diplomacy. We need to expand our maneuvering space by leveraging multilateral and regional organizations. We should actively utilize platforms such as the World Trade Organization (WTO), the Group of Twenty (G20), and regional organizations or agreements promoted separately by the U.S. and China depending on the issue. The East Asia Summit (EAS), Indo-Pacific Economic Framework (IPEF), Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and Regional Comprehensive Economic Partnership (RCEP) can serve as key platforms.

Here, we need to make substantive contributions to creating unique added value for each organization by issue. The recent recommendation from the British Economist magazine, emphasizing the importance of middle powers’ efforts to create public goods such as energy transition, labor standardization, and free trade norms to prevent bloc formation, is worth noting. Especially in this process, while emphasizing universality, openness, and inclusiveness, we must not overlook the importance of universal values that are core to our identity, such as liberal democracy, human rights, and the rule of law.

Second, while utilizing multilateral diplomacy, we should buy time to strengthen our industrial and diplomatic capabilities by continuously prioritizing the development of advanced materials industries and products that make both the U.S. and China need us. This is also related to fostering excellent industries and talent.