Seoul’s commerce minister has warned that the Biden administration’s sudden withdrawal of subsidies for electric cars in South Korea threatens to undermine confidence in the United States, as trade tensions escalate between allies.
Seoul is angry that electric cars made by Hyundai in South Korea will be excluded from the generous tax breaks contained in the Inflation Reduction Act, a landmark US law on climate, taxation and spending.
The uproar illustrates the impact on US allies of Washington’s efforts to boost domestic manufacturing in high-tech sectors including electric vehicles and semiconductors as competition with China intensifies.
In an interview with the Financial Times, Ahn Duk-geun mentioned Joe Biden’s visit to South Korea in May, when US President and Hyundai Chairman Chung Eui-sun announced a $5.5 billion investment to build the first dedicated electric vehicle factory and battery manufacturing facility. in the United States.
said Ahn, a professor of international trade law who took up his post shortly before Biden’s visit.
Then when this new law was enacted and signed by President Biden, the [it became clear that] This company was being discriminated against, and this situation had emotional and political repercussions.”
The Inflation Reduction Act, which Biden signed into law last month, provides for tax credits of up to $7,500 for electric vehicles combined in the United States, Canada and Mexico. But Hyundai’s plant in Georgia is not due to start production until 2025 – making it ineligible for subsidies until then.
“It caused a huge problem for Hyundai Motor, which decided to make a huge investment based on the current arrangement,” said Ahn, who noted that “there is not a lot of [US] Members of Congress and Senators were fully aware of all the details of the IRA.”
Ahn stressed that US officials have acknowledged Hyundai’s predicament and have been working positively with their Korean counterparts to try to “minimize the damage.”
“We don’t want to exacerbate the problem by adopting similar retaliatory measures,” said Ahn, who reiterated South Korea’s stance that left open the possibility of action at the World Trade Organization.
“But you never know, if the situation gets really serious, we’re also resilient.”
Ahn also acknowledged that there are differences between Seoul and Washington over US restrictions on transferring advanced manufacturing capabilities to semiconductor facilities in China.
“Our semiconductor industry has a lot of concerns about what the US government is doing these days,” Ahn said, citing the recently enacted chip law, which prohibits recipients of US federal funding from expanding or upgrading advanced chip capacity in China for 10 years.
“Of course, we share the US government’s concerns about the higher level of semiconductor products because there is a risk [that they could be] used for military purposes,” said Ann.
“At the very low end are semiconductor products that have nothing to do with these kinds of purposes, and we thought they were for general commercial purposes,” he added.
“The problem is in the gray area, where the US government is trying to access what were previously more general trading areas, and the Korean government sometimes has a disagreement over the demarcation of the border.”
As with many export-oriented countries, South Korea finds itself increasingly caught up in the intense competition between Washington and Beijing.
“Like many other country companies, Korean companies are trying to reduce their dependence on the Chinese market,” Ahn said.
He cited Beijing’s policy of “arbitrary interference in business” as well as its “double-trading” import-substitution policies as the most important factors driving foreign companies to reduce their exposure to China.
Over the course of the decade, he added, the “structure of trade” between South Korea and China will “change”, leading to a lower value chain as the exchange of sensitive technologies is increasingly controlled.
“Maybe the volume of trade will increase,” Ann said. “But it may be an increase in trade in low-value products, while trade in high-end and technologically advanced products may be reduced.” He said Korea is looking to expand relations with the United States and the European Union as part of a drive to reduce its trade dependence on China.
Ahn said that while South Korea and China remain interested in the possibility of a trilateral free trade agreement with Japan, these efforts are hampered by Tokyo’s resistance regarding unresolved political tensions with Seoul over Japan’s historic occupation of the Korean Peninsula.
He added that Japanese opposition has also complicated South Korea’s bid to join the Comprehensive and Advanced Agreement for the Trans-Pacific Partnership, an Asia-Pacific trade pact that does not include the United States or China.
“It is a very important topic for us and we have already spoken with all CPTTP members except Japan, which remains very reluctant to talk to us unless we resolve these diplomatic issues,” Ahn said. “The official position of the Japanese government remains very stubborn.”