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Graphic provided by jaewoogy.com

The first South Korean vehicle to be sold in the US was the Hyundai Excel, a subcompact car. The company managed to sell a remarkable 170,000 units of the model in 1986, the first year it was exported. There probably aren’t many people who remember that the Excel’s surprising success was a byproduct of the “economic war” between the US and Japan.

More than decades after that conflict ended, a similar one arose between the US and China. When two economic powers are embroiled in conflict, it’s bound to have a significant impact on a country as heavily dependent upon trade as South Korea.

China and the US are the two biggest markets for South Korean exports, accounting for 25.8% and 14.4%, respectively, as of 2020. That’s why Koreans are so anxious about getting crushed in the conflict between the two powers — like a shrimp between battling whales.

That’s also the reason for a sudden push for the pardon of Samsung Electronics Vice Chairman Lee Jae-yong, although the idea has been ruled out by the Blue House.

South Korea is obliged to devise an elaborate strategy that accounts for American intentions, China’s response, and its own situation. It may be helpful to consider how Japan responded to its conflict with the US.

The US-Japan conflict began in the 1960s and peaked in the 1980s and 1990s. Japan’s rapid growth since the 1950s threatened the US’s hegemony over the global economy. The US was taken by surprise, much as it had been at Pearl Harbor.

Automobiles offer a useful illustration. American automakers were helpless to combat the offensive of Japanese-made cars, which offered outstanding value for money. More than half of the US’s trade deficit vis-à-vis Japan originated in the automobile sector.

When the US began to apply trade pressure, including retaliatory sanctions, Japan responded by reaching an automobile agreement with the US in 1981, under which it reduced its volume of exports to the US. Since then, Japanese companies have increased car production inside the US and toggled their main export models from compact cars to luxury cars, such as the Lexus.

South Korea’s Excel soon filled that vacuum.

In the mid-1980s, the US and Japan’s competition over semiconductors sent sparks flying. Under intense pressure from Japan, Intel raised the white flag on DRAM chips.

The US once again resorted to trade pressure, hoping to retain dominance in semiconductors, a high-tech industry that would be crucial in the future. In 1986, Japan reached another deal with the US, this time about semiconductors. In the deal, Japan promised to open up at least 20% of its domestic market to foreign firms.

After that, Japanese semiconductors faded in importance. Absent that, South Korea’s rise to the top in the memory semiconductor sector would have been inconceivable. To compensate, Japan pivoted to providing the materials and equipment essential for South Korea’s production of semiconductors.

The US and Japan’s conflict was a struggle over economic leadership. But the US and China’s conflict goes beyond economic issues and is more of a struggle for hegemony. Ji Man-su, a scholar at the Korea Institute of Finance, described this as “a comprehensive competition between systems that’s not limited to the economy but also spans the areas of diplomacy, military, society, technology and culture.”

Japan chose a survival strategy in which it made moderate concessions to the US. But it’s hard to imagine China bending the knee of its own volition. That’s why the US’s conflict with China is likely to be much more intense than its conflict with Japan.

The US is targeting all of China’s key industries. The war over semiconductors has just begun.

The conflict between the US and Japan lasted for more than 30 years. The conflict between the US and China could last even longer than that.

South Korea ended up benefiting from the conflict between the US and Japan. That raises the question of what strategy it should adopt for the conflict between the US and China.

By Kwack Jung-soo, senior staff writer

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