Looking Back on 2022: The 10th Anniversary of the Korea-US FTA and the Future of US-Korea Economic Relations
Published December 28, 2022
This is the seventh article in a series looking at the issues identified in KEI’s annual ‘Top 10 Issues to Watch on the Korean Peninsula’ series, as well as other issues to watch as they unfold in 2022. The original “10 Problems” article can be found here.
In 2022, the United States and South Korea will rank 10thth Anniversary of the KORUS FTA. The KORUS FTA, implemented ten years ago, was the most advanced FTA the United States has entered into, and apart from his renegotiated KORUS FTA, it remains so today.
Over the past decade, both the US and South Korea have benefited from the KORUS FTA, with total trade in goods increasing by 68% to $169.1 billion in 2021. 71 percent.
Prior to implementation of the agreement, there were concerns about US beef and car exports. These sectors are also doing well under the KORUS FTA. U.S. beef exports to South Korea will increase from $525 million before the KORUS FTA to $1.1 billion in 2021, and U.S. car exports will grow from $347 million in 2011 to $3.5 billion. increased to
Economic relations between the United States and South Korea have also begun to change over the past decade, with the United States imposing a crude oil export ban and developing LNG export terminals. Prior to the FTA, machinery and electrical components were the largest US exports to South Korea, but by 2021, energy exports will grow to $18 billion, making them the US’s largest export to South Korea.
The past year has also witnessed changes that will shape the future of the US-South Korea economic relationship. At the summit between US President Joe Biden and South Korea’s new president Yoon Suk-yeol, the US and South Korea reaffirmed their commitment to work together in advanced technology areas such as semiconductors, EV batteries, AI, quantum computing and biotechnology. confirmed. The U.S. Congress also passed legislation affecting U.S.-South Korea trade in EVs and semiconductors through the Inflation Reduction Act and the CHIPS and Science Act.
Both laws affect South Korea’s key industries, but the Inflation Control Act has significantly increased tensions between the United States and South Korea. As a key part of America’s efforts to address climate change, the Reducing Inflation Act will significantly increase America’s investment in clean energy. However, it also does so by creating new requirements for EV tax credits that are discriminatory against South Korea. For a consumer to be eligible for his $7,500 EV tax credit, the vehicle must be manufactured in North America. Hyundai and Kia Motors have announced their intention to build his EV assembly plant in the US, but it won’t be operational until 2025.
In addition to assembly requirements, the Inflation Reduction Act, which begins in 2023, will impose new limits on the mineral and component content of EV batteries required for vehicles to qualify for the tax credit. This will force South Korean EV battery makers to adjust their supply chains to eliminate reliance on these key inputs from China and shift sourcing to US FTA partners.
The Chips and Sciences Act, along with tightening US export controls, is the second major piece of US legislation affecting South Korea-US economic relations. The CHIPS Act is intended to encourage investment in US semiconductor production through investment subsidies. But the law also requires companies that accept US subsidies to refrain from expanding production of advanced semiconductors (below 28 nanometers) in China. Combined with new U.S. export controls designed to thwart China’s development of advanced semiconductors, AI, and supercomputing, U.S. policy on semiconductors will keep semiconductor investments and South Korea doing business in China. further shaping their capabilities.
Troy Stangarone is a Senior Director and Fellow of the Korea Economic Institute of America. The views expressed here are those of the author only.
Photo from flickr Creative Commons’ Photostream of the Port of Tacoma.