Alessandro Ponzetto | May 23rd, 2022
It was quite an eventful weekend in South Korea for President Biden, with some surprises compared to expectations (see Part 1 for more).
On Saturday, South Korean President Yoon told reporters that the summit during Biden’s three-day visit to Korea marked an agreement “to step up (Korea’s) practical cooperation” in the fields of semiconductors, batteries, civil nuclear power, space development and cyberspace, adding these are a matter of “economic security.”
This was something already ongoing, as most of the big chaebols are already investing heavily in the States. In Part 1 we covered Hyundai’s investments in EVs, the company adding on Sunday that it will invest an additional $5 billion, without specifying where in the US the money will be invested.
Another big name worth watching is Samsung, as it already invested $17 billion on a fab near Austin, TX, and was visited by both Presidents early on in Biden’s trip to the country. Given the attention to semiconductors, the company (or more broadly the sector) is likely to ramp up investments and strengthen the supply chains.
While this is overall good news, there is an elephant in the room, or rather a dragon, to address. China was never mentioned in the joint statement, and the South Korean Foreign Minister stated that the arrangements with the US were not targeting any specific country, but this pretense was too over the top not to be picked up.
As we mentioned time and again with regards to South Korea, China holds quite an influence over the country (economically speaking) and it dominates several key supply chains. As such, one should expect some kind of response from Beijing, like Wang Yi’s. Specifically, the Chinese Foreign Minister said the following:
“Facts will prove that the so-called ‘Indo-Pacific strategy’ is essentially a strategy for creating divisions, a strategy for inciting confrontation, and a strategy for destroying peace.”
As of now, these are obviously words, but it is impossible to discount some response from them. After all, China has hit South Korea harshly for THAAD, and what Biden is trying is arguably a greater threat to them at this point in time.
With this said, we are already seeing the shift towards the US when it comes to trade: China is still the largest trading partner, but the US has been catching up. This could also be due to Zero Covid and how this policy has hampered the Chinese economy, something we have been covering in our Macro dailies rather consistently.
The economy is however only part of the picture, albeit an important one. On the diplomatic side, there are a few points to note.
To start with, the US confirmed it is not considering adding South Korea to the Quad, which is something not totally unexpected. Aside from the obvious repercussions with China, which would not take that lightly, South Korea would first earn the trust of the other Quad members (Japan especially). This is easier said than done, given the current relations between Seoul and Tokyo.
Secondly, there is another item in the agenda that stirred a reaction from China: Taiwan. In the joint statement, Seoul also agreed to play a bigger role in regional geopolitics, reiterating the importance of preserving peace and stability in the Taiwan Strait as an essential element of security and prosperity in the Indo-Pacific.
The inevitable back and forth on ‘One China’ et al ensued, especially as Biden stated the obvious by saying the US will defend the island in case of aggression. This is obvious because the US has intervened in every Strait Crisis, including in 1996 (when the US was already formally recognising the PRC as China). In all honesty, it is unclear to me why Biden had to poke this particular hornets’ nest, especially as Taiwan is not considered for the IPEF (more on this tomorrow).
Finally, there is the issue of North Korea. With regards to this particular issue, the joint statement does not offer anything particularly new as the two sides renewed efforts on deterrence (with a focus on joint exercises et al) while Yoon once again extended an olive branch with his ‘audacious plan’, still devoid of details.
While I understand offering an avenue, Kim is unlikely to be receptive: not only his regime expressed its displeasure towards the current South Korea President, but it is also busy with their own ‘anti-epidemic war’. Despite its more than earned reputation as a Hermit Kingdom, Pyongyang failed to keep Covid out, with hundreds of thousands of new cases being reported each day.
Ultimately, the result seems to be mixed.
When it comes to the economy, it is good on paper, but only time will tell whether it will be good also in practice (between the awkward interaction between IPEF and CPTPP, plus the plausible reaction from China to the whole affair)
Diplomatically, it seemed more of a window-dressing exercise, with little to no additional substance. Then again, all this happened before the important meeting with Japan (held today, which will be the subject of tomorrow’s piece) and the Quad meeting, which will arguably be the most important yet (especially given the election results in Australia).
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