[Insight & Opinion] The Privileges of Great Powers and the Formation of Order

The United States Excels at Creating New Orders
Adapting to Changed Rules Is the Only Way to Survive

[Asia Economy] A great power is a country that can create orders and rules that other nations must follow. A true great power can discard the order it created without hesitation if necessary to check its competitors, and can establish a new order to replace it. Over the past 100 years, the United States is the only country that has met these conditions and experiences.

Since the late 1970s, the United States mobilized all means to suppress Japan, which was rapidly growing economically. By imposing an unprecedented system called voluntary restraint through political and diplomatic pressure on Japanese automobiles and semiconductors, it restricted exports to the U.S. Through the Plaza Accord, the yen exchange rate was extremely revalued, successfully inducing the weakening of Japan’s manufacturing industry and the collapse of its financial system. In the early 1990s, during the Gulf War, the U.S. emphasized security threats by highlighting that most of the key components of precision strike weapons such as the Patriot and Tomahawk, which became famous then, were Japanese-made. The spread of the perception that the U.S. was excessively dependent on Japan in core advanced industries made checking Japan a major U.S. objective.

Through this process, the U.S. delayed Japan’s growth and bought time, while creating a new domain called the internet and shifting the world’s rules themselves to a digital order favorable to itself. Japan, the strongest player in the analog world, failed to adapt to the changing rules of the game, and the U.S. strategy of creating a new order to neutralize competitors achieved its goal.

After 30 years, China has become a presence similar to Japan in the past. During the financial crisis recovery process, the U.S. was negligent in checking competitors, and China took advantage of this gap to absorb a large amount of U.S. advanced technology and grow into a threatening power. Realizing China’s threat belatedly, the U.S. under the Trump administration fundamentally blocked China’s access to U.S. advanced technology through massive institutional strengthening for technology protection and control, buying time. The Biden administration has set the stage of U.S.-China competition on advanced technology.

However, most supply chains related to manufacturing based on advanced technology were centered on China. To weaken China’s competitiveness, the U.S. decided to change the China-centered supply chains that had been formed around private companies for 30 years. The recently enacted Inflation Reduction Act (IRA) concretizes this intention. Furthermore, the U.S. is breaking its own core international trade norms of free trade and minimal state intervention, creating new principles such as state-led industrial policy, market intervention based on government judgment rather than the market, and direct state subsidies to companies. Additionally, instead of free market access, the U.S. is promoting expanded investment by foreign companies within the U.S. and encouraging their departure from China by linking markets with investments.

During the U.S. process of checking Japan, we were able to seize an opportunity for leap forward. Now, 30 years later, the rules of the game are changing again. Our pursuit of maximum benefits from both the U.S. and China over the past 30 years should be recognized not as a given but as a privilege of a very special period. It is time to forget the happy past and start a new challenge to adapt to the new rules created by fragmented markets and divided supply chains.

Choi Jun-young, Specialist, Yulchon LLC

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