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President Yoon Suk-yeol and first lady Kim Keon-hee disembark from the presidential plane on April 24 at Joint Base Andrews near Washington. (Yonhap)

All eyes are on what tangible outcomes President Yoon Suk-yeol, who has taken to calling himself “South Korea’s No. 1 salesperson,” will bring home for Korea in his summit with US President Joe Biden this week.

Although South Korea’s room to maneuver has been limited by the enactment of the US Inflation Reduction Act (IRA) and CHIPS and Science Act, which directly affect domestic industries, there are still a number of issues the South Korean side must address.

According to the South Korean government, uncertainties caused by the two pieces of US legislation have already been settled. The overall mood is that what’s done is done.

Still, some warn against resignation, given the potential economic impact on some of Korea’s main industries. The grace period for South Korean companies to send semiconductor manufacturing equipment to their plants in China ends in October, making the situation all the more urgent.

“In order to upgrade Korean factories in China, we need to procure cutting-edge equipment in China. If it becomes difficult to send equipment to China after the grace period expires in October, expanding [production] will be difficult,” says Lee Kyu-seok, a research fellow at the Korea Economic Research Institute (KERI).

Last October, the US imposed export restrictions on shipments of chipmaking equipment made with US technology to China. Still, South Korean companies Samsung Electronics and SK Hynix were granted a grace period of one year, temporarily exempting them from the de facto ban.

“Whether it excludes Korean companies from being subjected to the ban or extends the grace period before it expires, [the government] needs an answer by October,” says Kim Yang-paeng, a researcher at the Korea Institute for Industrial Economics and Trade.

Some also argue that the so-called “poisonous” clauses in the CHIPS and Science Act regarding applications for subsidies should be brought to the negotiating table.

The Federation of Korean Industries recently cited allowing access to production facilities, sharing of excess profits, submission of a company’s financial documents, and restrictions on the expansion of factories in China as key problematic clauses that must be addressed.

“Korean semiconductor companies invest more than tens of billions of dollars in the US,” says Kim Yang-paeng. “We have to take advantage of the fact that the heads of semiconductor companies are accompanying [the South Korean delegation to the US] and bring up these problematic clauses even if it is behind closed doors.”

In other words, if the US insists on a hard-line stance, the South Korean side must respond with aggressive tactics of its own, such as using the possibility of withholding new investment as a bargaining chip.

President Yoon Suk-yeol and first lady Kim Keon-hee wave before boarding the presidential jet at Seoul Airport for their state visit to the US on April 24. (Yonhap)

After the details of the IRA were released earlier this month, the mood has been one of resignation to fate in the finished automobile and battery industries. This is why some argue that Korea should pay more attention to negotiations that will take place in the aftermath of Yoon’s visit to the US.

Even if South Korea has to strategically walk a tightrope to navigate US-China hegemonic power dynamics, long-term strategies to develop these industries are urgently needed.

“It should be noted that, in both the US and South Korea, the strategic industries are semiconductors and automobiles,” says Koh Tae-bong, head of research at Hi Investment & Securities.

“If China and Russia are labeled enemies, as the US has requested, South Korea will lose not only the Chinese and Russian markets, but also the Southeast Asian market. Rather than trying to gain something new from this summit, there is an urgent need to think about the current set-up of diplomatic relations,” Koh added.

“In the short term, the only way is for Hyundai Motor Company and Kia to quickly transition their local factories in the US into electric vehicle manufacturing bases,” says Lee Hang-gu, director of the Jeonbuk Institute of Automotive Convergence Technology.

\"In the long term after the visit to the US, the government needs to focus strategically by thinking about priorities such as which industries to promote,” Lee said.

Trade experts say that Yoon and his administration should use the summit to impress upon the Americans that the US policy of putting America first is having a negative impact not just on South Korea, a key ally, but also on the global economy.

“Our government should strongly tell [the US] that it needs a consistent, predictable, transparent, and reciprocal perspective on supply chain restructuring,” suggested Kim Yang-hee, a professor of economics at Daegu University.

\"We should use this summit as an opportunity to build a consensus on the restoration of the free trade order and a free trade environment as the basis for global economic prosperity,” says Park Bo-kyeong, a professor at Kyung Hee University\'s Graduate School of Pan-Pacific International Studies.

By Ko Han-sol, staff reporter; Ock Kee-won, staff reporter; Choi Woo-ri, staff reporter

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