South Korea Caught in US-China Supply Chain Restructuring... "Bifurcation Strategy Needed"

Muheop, 'Major Countries' Supply Chain Restructuring Strategies and China's Response' Report

Amid the tense standoff between major countries such as the United States and Europe reorganizing their supply chains and China's response, it has been advised that South Korea should effectively utilize supply chain portfolio diversification and a ‘China-non-China dual strategy.’

On the 23rd, the Korea International Trade Association's Institute for International Trade and Commerce stated in its report titled "Major Countries' Supply Chain Restructuring Strategies and China's Response" that major countries including the United States and the European Union (EU) are showing supply chain restructuring movements to contain China by ▲internalizing strategic industry supply chains, ▲restricting the outflow of their advanced technologies to China, and ▲highlighting labor and environmental issues. It analyzed that China is responding by mobilizing various policy measures such as ▲building an independent supply chain, ▲legislating economic security laws including export control laws and anti-espionage laws, ▲expanding foreign investment attraction, and ▲accelerating the transition to carbon neutrality.

It has become necessary for Korean companies to respond to the U.S.-led supply chain restructuring aimed at containing China and China's countermeasures. The report diagnosed that while preparing so that carbon and labor-related trade norms such as the U.S. and European carbon border adjustment mechanism (CBAM) and the Uyghur Forced Labor Prevention Act (UFLPA) do not act as trade barriers to Korean companies, it is also necessary to check vulnerable areas in preparation for possible economic coercion measures by China and seek cooperation with other countries.

Furthermore, since China holds strengths as the single largest market and manufacturing base, Korean companies should not give up on the Chinese market itself. Instead, it is suggested to consider a strategic judgment to separate China-related businesses and supply chains from the global market. To respond to the competition for supply chain leadership among countries, securing a super-gap technology is necessary, so expanding corporate support such as investment in core technologies, research and development (R&D) tax credits, and subsidies, as well as expanding technological and supply chain cooperation with third countries, was also raised as a necessity.

Han Areum, a researcher at the Korea International Trade Association, said, “Korean companies should not become innocent victims of supply chain restructuring policies by the U.S., EU, and others,” and added, “The public and private sectors must respond together to unresolved issues such as the IRA’s Foreign Entity of Concern (FEOC) guidelines.”

She continued, “China still remains the single largest market globally and possesses manufacturing infrastructure and industrial clusters that are difficult to replace in the short term,” adding, “Companies should consider a dual strategy that uses production bases within China exclusively for domestic consumption while establishing production bases for countries with strict regulations against China, such as the U.S., locally in the U.S. or in third countries like India and Mexico, rather than simply decoupling from China.”

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