October 13, 2022 13:42
For policy makers, every alliance is measured by its "hardware" and "software." The hardware is the vast policy apparatus of bilateral consultations and dialogues across scores of different agencies involving hundreds of individuals on both sides that take place annually, biannually, and quarterly. For decades, the hardware of the U.S.-South Korea alliance was predominantly military, but has recently expanded to cover trade, investment, global health, development assistance, supply chains, among other areas. Equally important, however, is the "software" of the alliance. By this I mean that at the very highest levels, the alliance is human and very personal. Leaders strive to ensure that they have good rapport and do not do things to offend one another.
Ideally the best situation is when the hardware and the software of the alliance are both good. That is, there is overlap on policy objectives, and there is strong personal rapport between the leaders. Even when the hardware is not good, a personal friendship between the leaders can help to overcome policy differences. However, when the software goes bad, it can set back an alliance for months and even damage any policy agreements.
An example of bad software occurred in the first encounters between Kim Dae-jung and George W. Bush in February 2002. Pressing for an early summit with the newly-elected president, Kim came to Washington and gave a long explanation why the U.S. should adopt South Korea's "sunshine" policy in dealing with North Korea. Bush listened politely but was not pleased at being lectured to, and this set relations back from the very start.
Presidents Yoon Suk-yeol and Joe Biden appear to have gotten along swimmingly at their first summit meeting in May 2022. The hardware is good in that there is a broad agreement on a range of policy issues including North Korean denuclearization, a free and open Indo-Pacific, U.S.-Japan-South Korea trilateral cooperation, supply chain security, global health, clean 5G networks, the Chips 4 alliance and development assistance. Even more important regarding the alliance's software is the two leaders established a good personal rapport, with Biden telling Yoon, "I have deep trust in you."
But after that positive start, the software may have developed some "glitches" as a result of small missteps on both sides. First, following the May 2022 summit in Seoul, a large, high-level delegation of South Koreans traveled to Washington in late July for the dedication of the new Wall of Remembrance at the Korean War memorial. While the Yoon administration sent the minister of defense, minister of veteran affairs and several CEOs of South Korean conglomerates who financially supported the monument, the Biden administration was represented by only the husband of Vice President Kamala Harris. This mismatch of protocol was not perceived positively by South Koreans.
Then a little less than two weeks later, U.S. House Speaker Nancy Pelosi visited Seoul directly after her controversial visit to Taiwan to meet President Tsai Ing-wen. No one from the Yoon administration met the third highest ranking official in the U.S. government at the airport, which apparently irked Pelosi. And while the Yoon administration's explanation for the president's not meeting Pelosi was due to a schedule conflict -- Yoon was officially on holiday -- the public perception in Washington D.C. was that Seoul ducked out of a meeting because it did not want to upset China.
About 10 days after the Pelosi debacle, Yoon delivered the traditional Liberation Day speech on Aug. 15, which was notable for its emphasis on improving relations with Japan and his commitment to improving trilateral cooperation among Washington, Seoul, and Tokyo. Domestically, it was a big risk for Yoon to use such language on such a sensitive, taboo topic. Yet, the speech received little attention in Washington, D.C. and no public acknowledgment from high level officials in the Biden administration.
Instead, the following day, Biden signed into law the $430 billion Inflation Reduction Act which among other measures scraps a $7500 tax subsidy for electric cars not made in the U.S., Canada, or Mexico, directly affecting Hyundai and Kia. For South Koreans, it is unimaginable that the United States could carry out such discriminatory measures against South Korea after the multi-billion dollar investments by South Korean conglomerates SK, Samsung, and Hyundai pledged last May in Georgia, Tennessee, and Texas. Moreover the IRA measures for South Korean vehicles are inconsistent with the bilateral free trade agreement.
Then on the sidelines of the UN General Assembly in New York last week, Yoon was caught in a "hot mic" moment making a denigrating comment about Biden and the U.S. Congress. Yoon later denied that the remarks were directed at the United States, but the incident has created a furor in the South Korean press and the opposition party.
This is a remarkable series of events that has the potential to undo the successes of the May 2022 summit. Will it damage the personal friendship between the two leaders?
First, I do not think the "hot mic" moment will hurt relations with the U.S. While it has become a big political story in South Korea, it has received almost no coverage in the American media, and U.S. officials barely noticed it. Vice President Harris said as much last week during her visit to South Korea, when she commented that the U.S. "does not care at all" about the issue.
Second, the ability to find a resolution to the IRA issue will be understandably harder, but the good software in the alliance -- the friendship between Biden and Yoon -- will be an important factor in charting a path forward. I do not think that there was any intentional targeting by Biden of South Korea with the IRA. This is a domestic piece of legislation and not under the purview of the national security team at the White House responsible for the alliance.
Third, U.S. policymakers probably calculated that on balance the IRA provides substantially more benefits to South Korea than losses. For example, the IRA's tax credits for companies that produce EV batteries in the U.S. will substantially benefit SK, LG, and Samsung's planned joint venture investments in this sector in the U.S. These cost advantages, which are not extended to Chinese components, will significantly favor South Korean EV batteries not just in the U.S. but globally. In addition, the IRA's restrictions on the use of Chinese components will prevent U.S. carmakers from taking advantages of the subsidies before 2025, when Hyundai's Georgia plant is scheduled to come online.
One solution would be to revise the legislation to extend tax subsidies to foreign-made electric cars if they are produced in countries that have a standing free trade agreement with the U.S. Another would be to insert a rider in a bill to delay the tax subsidy until 2025. This would give South Korean manufacturers time to complete their U.S. factories.
A third alternative would focus on state legislation that tried to streamline regulations to enable accelerated construction of the car plants in Georgia to facilitate production of vehicles in the U.S. earlier than 2025.
There should be no illusions that any of these solutions are easy. And the U.S. will try to address South Korean concerns, but with an understanding that these problems are short-term ones, while the benefits of the IRA to South Korea are real and will come to fruition within only a couple of years.
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