Since the inauguration of Trump’s second term, U.S. trade policy has triggered profound changes in the global trading order. The United States, prioritizing the prevention of illegal immigration and drug trafficking as matters of national security, has implemented stringent trade measures such as the imposition of high tariffs and the renegotiation of bilateral agreements. These policies have amplified uncertainty across the external environment of Latin America, including Mexico and Brazil. The recent U.S. decision to impose a 50 percent retaliatory tariff on Brazilian products starkly illustrates the vulnerability of Latin American trade to policy volatility. Against this backdrop, the upcoming USMCA renegotiation in July 2026 is likely to become another critical variable for the region’s external relations and supply chain configuration.

Despite the rising geopolitical and geoeconomic importance of Latin America, the region remains relatively marginal within Korea’s trade strategy. Yet, the ascent of the Global South, the restructuring of supply chains, and the diversification of trade partners underscore Latin America’s growing strategic value and the urgency for Korea to pursue proactive and long-term policy responses.

In this context, Japan’s experience in Latin America provides meaningful insights for Korea. Japan has consolidated its presence by focusing on traditional manufacturing sectors such as automobiles, machinery, and chemicals, establishing dual hubs in Mexico and Brazil while simultaneously diversifying into markets such as Argentina and Chile. Japanese firms have strengthened localization strategies by responding proactively to policy changes, including Brazil’s “Mover” program and Mexico’s environmental regulations. In the resource sector, Japan has sought stable access to critical minerals such as lithium and copper through close government–business collaboration, supported by financial and policy instruments that helped mitigate risks.

This study investigates Japan’s industry- and period-specific entry cases and government support policies to derive policy implications for Korea’s Latin America strategy. The key recommendations are as follows:
First, strengthen government–business linkages to institutionalize supply chain restructuring support.

Second, emphasize reference-building at the initial stage of entry to establish a foundation for long-term growth.

Third, respond proactively to environmental and regulatory changes to build trust with local governments and turn compliance into a source of competitive advantage.

Fourth, maintain a Brazil–Mexico-centered strategy while expanding into Argentina, Chile, and Colombia to diversify regional risks.

Fifth, explore opportunities for joint ventures with Japan, particularly in strategic sectors such as minerals.

In sum, Japan’s experience highlights essential lessons for Korea to achieve stable and sustainable outcomes in Latin America under conditions of global trade uncertainty. Rather than merely replicating Japan’s approach, Korea should design tailored strategies that reflect the specific characteristics of Korean firms and the diverse demands of Latin American economies.

This study comprehensively analyzes cross-border investment and spillover effects of artificial intelligence (AI) technology in the era of the 21st century’s paradigm shift toward an intangible asset-centered economy, and proposes policy directions for enhancing Korea’s AI industrial competitiveness. The research particularly focuses on exploring effective response strategies that technology-follower countries like Korea can adopt in a situation where global AI investment is extremely concentrated in the United States and China.

Examining the research background, the proportion of intangible assets in the market value of major global companies has surged from 17% in 1975 to 90% in 2020, with global AI investment reaching approximately $252.3 billion in 2024, a 17-fold increase from 2013. However, while the United States accounts for over 60% of global AI investment, Korea represents merely 1.5-2.0%, revealing an extreme polarization of technological hegemony with 93% of AI-related patents concentrated in the US and China. In this context, although Korea possesses successful technology catch-up experience in manufacturing sectors from the past, the AI era’s technological competition presents fundamentally different challenges due to the characteristics of intangible assets—high initial development costs and near-zero marginal production costs.

Starting from this problem awareness, this study systematically conducted historical experience analysis, global AI investment status surveys, theoretical model construction, and empirical analysis using the GVAR model. Analysis of Korea’s past technology spillover experiences revealed that Samsung Electronics’ case of overcoming a 5.5-year technology gap in the memory semiconductor sector demonstrated the importance of systematic technology partnerships and continuous R&D investment. In the IT hardware sector, economic benefits related to productivity improvement increased approximately 3.7-fold from 76.4 trillion won to 286.4 trillion won during the 2000-2005 period.

Through theoretical model analysis, the study confirmed that when intangible asset investment spillovers occur from technology-leading countries to technology-adopting countries, the adopting countries can achieve higher utility while investing less. Furthermore, under an appropriate spillover royalty system, benefits can accrue to both leading and adopting countries; however, the findings suggest that adopting countries need to maintain continuous intangible asset investment to prepare for potential spillover cessation by leading countries due to narrowing technology gaps.

The empirical analysis using the GVAR model yielded particularly noteworthy results. When Korea experienced an AI-related FDI outflow shock, domestic real GDP increased by 0.33%, while FDI inflow shocks resulted in only a 0.19% increase, confirming that technology acquisition through overseas investment may show stronger economic correlations. Stock indices showed a positive response of 0.75% to FDI outflow shocks and a negative response of -1.61% to FDI inflow shocks, indicating that markets tend to positively evaluate overseas AI investment from the perspective of securing future competitiveness.

Synthesizing these analytical results, this study presents the following policy implications. First, considering that overseas AI investment shows stronger economic correlations than domestic investment attraction, it is necessary to establish an institutional foundation that supports Korean companies’ investments and joint ventures with global AI companies and facilitates the return of acquired technology and talent to Korea. Second, given the 83-fold investment gap with the United States, rather than competing in all AI fields, a strategy of selection and concentration in specific areas such as AI hardware-software convergence that leverages Korea’s strengths in manufacturing and IT hardware capabilities is required. Third, while effectively utilizing technology spillovers, Korea must maintain an appropriate level of independent intangible asset investment to prepare for potential technology blockades by leading countries. Fourth, Korea should pursue a balance between international cooperation and independent innovation by strengthening partnerships with the United States while also participating in the establishment of AI technology cooperation networks within the Northeast Asian region.

In conclusion, this study suggests that for Korea to bridge the technology gap in the AI era and secure sustainable competitiveness, it needs to reinterpret past success patterns to fit the characteristics of the AI era and adopt a differentiated approach through selection and concentration. Particularly, an integrated strategy linking technology acquisition through overseas investment with the construction of a domestic innovation ecosystem is required, along with the establishment of a flexible policy framework capable of responding to the rapidly changing global AI technology environment.

Executive Summary

1. Introduction

2. Data

3. The Model

4. Qualitative properties

5. Numerical Simulation

6. Conclusion

Appendix

References

Digital platforms have become central to modern economies, as consumers increasingly spend leisure time online and platform firms transform user engagement into economic value. This study develops a multi-country, multi-industry open economy general equilibrium model to analyze how web traffic—measured as visits to platform domains—can be converted into “data capital” through big data and AI algorithms and then used as a non-rival input for production and innovation.

To ground the analysis, we construct a new dataset that links domain-level web traffic to corporate ownership across countries. The evidence reveals sharp cross country differences in the geographic origin of users. U.S. platforms attract a strongly international audience, with domestic users accounting for less than one-third of visits on average. Chinese platforms are more domestically concentrated, though TikTok stands out as a global exception with a highly international user base. Korean platforms, by contrast, rely overwhelmingly on domestic users, with less than ten percent of traffic originating abroad. Comparing these patterns with international service trade statistics, we find that countries with higher shares of foreign users are systematically more active in exporting online services.

Qualitative analysis provides further insight into user behavior. Consumers allocate more time to a platform when they experience greater content satisfaction, which depends on both technological quality and country-specific content preferences. When the quality of foreign platform content improves, consumers reallocate time away from domestic platforms toward foreign ones. The extent of this shift is influenced by the elasticity of leisure demand, the substitutability across platforms, and the share of time already devoted to foreign platforms.

The general equilibrium model allows us to simulate counterfactual scenarios and evaluate policy-relevant outcomes. Reducing cross-border frictions to foreign content raises welfare in all countries, primarily through the expansion of content variety and the reallocation of consumer time, while leaving the broader industrial structure largely unchanged. Lowering barriers faced by foreign platforms, such as discriminatory digital services taxes, increases platform revenues, encourages consumers to spend more leisure time online, and strengthens investment incentives for domestic platforms. Although the immediate welfare gains are modest, the longer-run effects on intangible investment and innovation are more significant. Enhancing the productivity of platform R&D generates asymmetric effects by expanding platform activity in the innovating country and reducing it in the non innovating country, yet global welfare increases because users everywhere benefit from improved content quality and diversity.

Taken together, the findings highlight that the accumulation of web-traffic-based data capital is a central driver of platform growth. Policies that improve access to foreign content, the taxation of digital services, and foster innovation in platform R&D directly influence how consumer time is allocated and how platform firms invest in data-driven growth. For policymakers, the results suggest that lowering barriers to cross-border online activity can deliver substantial welfare gains, that digital taxation should be carefully designed to balance fiscal and innovation objectives, and that investment in platform R&D is essential for competitiveness in the global digital economy.

In sum, this study demonstrates that digital platforms thrive not only on technological progress but also on the ability to accumulate and deploy data capital derived from web traffic. Recognizing the economic role of data capital is crucial for designing effective policies in the digital era, where market access, taxation, and innovation shape the international competitiveness of platform industries.

Executive Summary 1. Introduction 2. The model 3. Quantitative analysis 4. Conclusion Appendix References

Recognizing changes in the global economic order and its severe dependency on foreign resources and technology, Europe is greatly invested in strengthening its economic security and further developing its industries. Consecutively, European governments have introduced policies to enhance the competitiveness of their advanced industries. This study identifies the status, strengths and weaknesses of European advanced industries, by examining the present conditions of advanced industries in Europe in terms of trade, R&D expenditure, and human resources, and also comparing the competitiveness in advanced industries with the US and China. Furthermore, it identifies the policy direction of the EU and the UK for advanced industries from the perspectives of promoting innovation and bridging the technological gap, expanding investment, and fostering a level playing environment. This study also reviews the key support policies and regulations for specific sectors in advanced industries, i.e., batteries, semiconductors, AI & digital industry, health & biotech, clean technology, and aerospace.

The following points were confirmed through this research. First, both the EU and the UK recorded trade deficits in items classified as high-tech industries, indicating extensive dependence on foreign sources in these fields. The EU’s R&D expenditure rate also turned out to be less than that of the US and China. While the number of jobs in advanced industries are likely to increase, the EU’s low projection for working-age population in the future indicates that this vacancy is not expected to be filled, unlike in the US and China. These statistics reaffirm the necessity and legitimacy of European policies aimed at enhancing competitiveness in the advanced industry. Second, the EU and the UK are pursuing multifaceted policies to strengthen competitiveness in advanced industries under the overarching goal of climate neutrality. The EU aims to meet more than 40% of its demand for climate-neutral technologies internally by 2030, seeking to reinforce clean-tech production capacity. Initiatives such as Horizon Europe, the Strategic Technologies for Europe Platform (STEP), and the EU Blue Card are being employed to address key challenges and labor and skill shortages. In accordance with its Modern Industrial Strategy (2025), the UK is planning to actively invest in key sectors - automobiles, aerospace, biotech, and clean energy - to stabilize supply chains. In terms of utilization of various funds, the EU is actively promoting Public-Private Partnerships (PPP) projects and investment guarantees via InvestEU, while the UK is significantly increasing investment to strengthen its industrial ecosystem. Furthermore, both the EU and the UK are working to foster fair competition and to expand international cooperation while building internal supply chains and pursuing supply chain diversification. Third, in key strategic industries, both the EU and the UK are simultaneously pursuing large-scale investments and regulatory reforms to drive green and digital transitions along with technological sovereignty. In the batteries sector, the EU is continuously investing in battery manufacturing within Europe, while advancing battery R&D and recycling systems. Meanwhile, the UK is focusing more on technological development and design cooperation. As for the semiconductors sector, the EU is aiming to engage across the entire value chain to address manufacturing vulnerabilities. Considering how the sector is so far dominated by Asian countries, establishing a strong position in batteries manufacturing remains challenging. However, the UK is maintaining a niche market strategy focusing on R&D, design, and IP. In the digital industries sector, such as AI and quantum technology, both the EU and the UK are pioneering regulatory and normative frameworks to challenge US-China technological leadership. Their policies target technological sovereignty and competitiveness through R&D and infrastructure development, with accompanying efforts to implement policies addressing carbon neutrality in the energy-intensive infrastructures. In the health and biotech sectors, the EU policy centers on supply chain stabilization, enhancing internal manufacturing capacities, regulatory streamlining, expanding clinical trial infrastructure, and strengthening the security of critical pharmaceutical supply chains. Clean energy technologies are being promoted through the Net-Zero Industry Act and the Clean Industrial Deal, aimed at strengthening local manufacturing capabilities for eight strategic technologies - including hydrogen, batteries, carbon capture and storage (CCS) - while reducing reliance on non-European countries. Large-scale joint investments and infrastructure development under the IPCEI initiative are actively in process in the hydrogen segment. Meanwhile, the EU maintains a strong position in the aerospace industry sector, mainly thanks to Airbus, while concurrently advancing research on sustainable aviation fuels (SAF) and improving aircraft efficiency. In space, major projects like Galileo and Copernicus are underway, and the EU Space Act has been proposed to secure global standard-setting leadership.

The key implications for Korea’s strategic engagement with the EU and the UK’s advanced industry policies can be summarized in three main points. First, in terms of investment, Korea should strengthen R&D and equipment investment in key sectors such as batteries, semiconductors, AI and quantum technology, while actively leveraging its associate membership in Horizon Europe to enhance networks and market access opportunities. Second, to improve the investment environment, Korea needs to introduce converged regulatory sandboxes and streamline approval procedures, as demonstrated by the EU’s One-Stop Shop model, to foster a competitive industrial ecosystem. Third, for broader cooperation, Korea may consider solidifying its global position in positive technology exposure and standardization processes by participating in public procurement projects and the Korea-EU digital, green, and security partnerships. It should also mitigate supply chain risks by easing upstream dependencies and strategically practicing mid- and downstream network collaboration. Furthermore, it is crucial to proactively respond to ESG regulations (such as the CSDDD) and solidify the foundation for long-term cooperation with Europe through talent exchange and joint research.

Carbon neutrality, as a long-term goal of the international community, can only be achieved through innovation in climate technologies. The scale of climate finance and clean energy investments has continued to grow, with new markets recently emerging through the convergence of climate technologies with other advanced technologies such as artificial intelligence (AI). In this context, this study focuses on the growth and global expansion of startups, which are key economic players capable of driving innovation in climate technologies. In the study, a climate tech startup is defined as an unlisted company established within the past 10 years that has innovative ideas or business models related to technologies contributing to greenhouse gas reduction or climate change adaptation. Based on this definition, the study examines not only the roles of government support in leading countries but also success stories of promising climate tech startups. It also analyzes the ecosystem for climate tech startups and the effectiveness of R&D support programs in Korea, ultimately deriving policy implications for Korea.

Chapter 2 analyzes the key strategies of major countries and promising climate tech startups. Across all the countries reviewed, governments are increasing financial support, encouraging private investment, and supporting networking hubs to connect climate tech startups with each other and other partner companies. In particular, Germany operates large-scale and long-term funds such as the DeepTech & Climate Fund (DTCF), targeting startups at the growth stage rather than those in the early phase. Japan offers incentives, including tax deductions, to encourage collaboration between startups and large corporations as well as investment from large corporations. On the other hand, the UK and the US, where the climate tech markets are largely driven by the private sector, operate specialized institutions for high-risk, high-reward technologies such as ARIA and ARPA-E. The UK promotes the commercialization of climate technologies through regional clusters and innovation networks, including Catapults and Living Labs. The US supports climate tech startups through initiatives like the Energy Program for Innovation Clusters (EPIC), which funds organizations within regional innovation ecosystems. Finland, where both the public and private sector are actively engaged, encourages startups to expand overseas from the early stages of their establishment.

Promising climate tech startups around the world are growing and expanding their businesses into global markets by leveraging various government support programs, attracting private investment, engaging in technology collaborations and partnerships, and capitalizing on the capabilities of their founders. For example, companies such as TBM and Sila Nanotechnologies have successfully utilized a range of government programs from the R&D stage to commercialization for their growth and international expansion. Climeworks and Ascend Elements have secured some of the largest investments in the industry by demonstrating operational success with facilities applying their own technologies and by leveraging government matching funds. Sunfire, Clean Planet, and Coolbrook have achieved successful demonstration and commercialization through strategic partnerships with corporations, universities, and research institutions. Meanwhile, Carbon Clean and 44.01 have developed distinctive business models driven by the leadership and technical expertise of their founders.

Chapter 3 explores the ecosystem and enabling environment for climate tech startups in Korea, along with an analysis of the effectiveness of government R&D programs. Climate tech startups in Korea account for only approximately 5% in terms of both number and total investment scale as of the 2015-2024 period. Over 70% of the total investment was concentrated in the early stages of investment (Series A and below), and the pace of investment attraction remains relatively slow. Notably, government support has led the growth of startups, while the investment shares of venture capital (VC) firms and corporate venture capital (CVC) entities remain comparatively low. Policies and institutional support for climate tech startups primarily focus on financial assistance and the development of a startup ecosystem. Through financial mechanisms such as the Climate Technology Fund, the government aims to stimulate private investment while strengthening the roles of technology demonstration platforms and regional innovation clusters including Green Convergence Clusters. In addition, programs supporting global expansion, such as an initiative to link the Creative Technology Solution (CTS) and Tech Incubator Program for Startup (TIPS), are recently being implemented.

In order to evaluate the effectiveness of the Korean government’s support for climate technology development, the study analyzed the five-year outcomes of R&D support programs implemented between 2016 and 2018. The analysis focused on major climate technologies, including renewable energy, energy efficiency, and hydrogen and ammonia utilization technologies, selected based on their potential for emission reduction and trends in national R&D investment. An AI-based deep learning classification model was used to identify participants in major climate technology R&D support programs. Propensity Score Matching (PSM) and Difference-in-Differences (DID) methods were then used to estimate the impact. The results indicate that the R&D support programs had a positive effect on the financial performance of both startups and small and medium-sized enterprises (SMEs), with a notably stronger and more sustained impact observed in startups compared to SMEs. However, innovation outcomes showed a temporary increase only among SMEs, whereas social outcomes such as job creation were not statistically significant.

Based on these findings, the study suggests policy directions necessary to effectively support climate tech startups in Korea. These include general strategic directions and stage-specific support strategies tailored to the R&D, demonstration, and growth/scale-up phases. Detailed implications for each are discussed below.

Above all, it is crucial to enhance the understanding of climate technologies while ensuring the continuity and consistency of policy frameworks. Achieving this objective requires adopting a balanced and comprehensive perspective on climate technologies. Moreover, it is important to recognize that the perceptions of firms and investors are likely to shift only when there is a credible assurance regarding the long-term sustainability of government policies. The positive impacts of major climate technology R&D programs identified in this study further underscore the importance of sustained support for climate tech startups.

By stage of technology development, the first priority in the R&D phase is to assess whether technology support adequately addresses the integration of different technologies and market demand, and to strengthen the role of universities. Evaluating whether existing policies sufficiently foster technological innovation through convergent approaches is crucial. From a market demand perspective, a detailed analysis should be conducted to identify which technologies are likely to attract significant investment incentives at specific points in time, and this information should be effectively utilized. In addition, measures to enhance incentives for university-based startup activities and collaborative research with external partners should be considered.

Second, in the demonstration phase, it is important to encourage early-stage startups to pursue global expansion and to support regional networks. Given that the Korean economy has high export dependency and a small climate technology market, overcoming these limitations requires strategies that promote consideration of overseas market entry from the initial stage of idea development, similar to the Finnish model. Furthermore, strengthening the role of regional living labs and facilitating the adoption of technologies validated within the region at relatively low cost should also be prioritized.

Finally, in the growth and scale-up phase, it is necessary to expand investment incentives for climate technologies and to support the strengthening of partnerships between firms. It is recommended that tax incentives for climate technology be introduced or enhanced to encourage participation from a diverse range of private investors. In addition, policy mechanisms should be developed to attract investment from well-capitalized firms and corporate venture capital (CVC) entities. For startups seeking global expansion, efforts to facilitate strategic partnerships with local companies in target markets should be further strengthened.

As strategic competition between the United States and China intensifies, tensions in the Taiwan Strait are escalating. The wars in Ukraine (2022) and between Israel and Palestine (2023) have further heightened global uncertainty. The Council on Foreign Relations (CFR) has designated Taiwan as the most dangerous region since 2021. U.S. military, intelligence leaders, and academic experts have warned of potential military conflict over Taiwan by 2027, and numerous reports assume U.S. intervention in the event of a Chinese invasion. China has conducted four large-scale military exercises around the Taiwan Strait since the visit of U.S. House Speaker Nancy Pelosi during President Tsai Ing-wen’s administration (2016–2023) and following the inauguration of President Lai Ching-te (2024–present). The Trump administration’s second term further underscored China’s expanding influence and its ambitions regarding Taiwan in its Interim National Defense Strategic Guidance (INDSG) released in March 2025. Against this backdrop, the Democratic Progressive Party’s (DPP) strengthened pro-independence stance, increased U.S. legislative and military support, and China’s declaration of possible military unification have collectively exacerbated political and diplomatic instability among the United States, China, and Taiwan. In particular, Taiwan’s geostrategic value—bolstered by its advanced semiconductor technology—is gaining prominence, further intensifying U.S.-China rivalry.

As a result, there is growing focus on whether Trump’s second term will lead to a fourth Taiwan Strait crisis amid tensions between the United States, China, and Taiwan. This is because various issues surrounding Taiwan are expected to have a direct impact on the economic and industrial stability of Taiwan, South Korea, and Japan as these tensions intensify. Therefore, there is an increasing need to analyze the mutually complementary industrial structures between Taiwan and South Korea, China, and Japan, and to measure the potential ripple effects in preparation for a Taiwan crisis.

Against this backdrop, this study comprehensively analyzes the potential impact of a Taiwan crisis on the economies and industries of South Korea, China, and Japan in East Asia, based on a scenario involving Trump’s second term. It aims to examine the triangular relationship between the United States, China, and Taiwan not only from a political perspective but also from an economic standpoint.

Above all, unlike political conflicts, cross-strait relations continue to exhibit a strong structure of economic interdependence. In 2024, Taiwan’s export and import dependence on China (including Hong Kong) stood at 20.3% and 26.6%, respectively, with electrical and electronic machinery accounting for 62.3% of this trade, indicating a high level of supply chain linkage. As of 2020, six of China’s top ten exporting companies were Taiwanese firms, primarily in the information and communications sector. Taiwanese companies also remain a major source of foreign direct investment (FDI) in China, contributing significantly to tax revenue and job creation. Furthermore, measures such as China’s tourism restrictions and the partial suspension of tariff-free trade under the ECFA have not had a significant impact on Taiwan’s macroeconomy.

This duality in cross-strait relations functions in an even more complex way within the triangular dynamics of the United States, China, and Taiwan. The Taiwanese Democratic Progressive Party(DPP) government has strengthened its pursuit of independence by focusing on advanced semiconductor manufacturing and expanding diplomatic and security cooperation with the United States to counter China. In parallel, the United States, aiming to decouple its semiconductor industry from China, has deepened cooperation with Taiwan and encouraged TSMC’s investment in the U.S. through initiatives such as the CHIPS Act.

At the same time, while Taiwan pursues a strategy aligned with the United States in the semiconductor sector, it seeks to maintain strategic balance by managing its economic ties with China. Notably, Taiwan’s semiconductor exports to China (HS code: 8542) in 2024 are approximately six times larger than those to the United States. Although Taiwan’s export dependence on China is gradually declining and its reliance on the U.S. market is increasing, this trend does not indicate a complete decoupling from China, as political tensions in the Taiwan Strait persist. This pattern reflects structural factors, including rising labor costs in China, the substitution of intermediate goods due to China’s industrial upgrading, the erosion of Taiwan’s comparative industrial advantage, and the impact of the U.S. ‘Friend-Shoring’ strategy.

Moreover, under the second Trump administration, U.S. policy toward Taiwan has shifted toward a more pragmatic approach characterized by transactional diplomacy rooted in ‘America First’ (MAGA) principles. Following TSMC’s announcement of a $100 billion investment in the U.S., Washington has adopted measures such as pressuring Taiwan to increase defense spending and imposing higher tariffs, thereby exacerbating security concerns within Taiwan. Consequently, Taiwan may adjust its diplomatic strategy to prioritize practical interests between the United States and China. While the United States has enacted pro-Taiwan legislation and provided military support, ambiguity persists regarding the extent of U.S. military intervention in a Taiwan contingency, particularly in terms of defense spending commitments and the political will to resist Chinese aggression.

Therefore, Taiwan is expected to avoid transferring core semiconductor technology to the United States and focus on strengthening its domestic production capabilities to maintain its strategic position. The United States will likely continue intervening in cross-strait relations due to its need for cooperation with Taiwan, while China will accelerate semiconductor localization and maintain its involvement in cross-strait dynamics. As a result, a semiconductor security balance among the United States, China, and Taiwan may emerge, potentially stabilizing tensions in the Taiwan Strait to a certain extent (Scenario I: Status Quo Among the United States, China, and Taiwan).

Conversely, if Taiwan’s core semiconductor technology is transferred to the United States, Taiwan’s strategic value may decline as the U.S. achieves semiconductor localization, leading to reduced U.S. engagement in cross-strait affairs. Meanwhile, China would likely accelerate localization efforts and continue its intervention. If Taiwan further advances its independence agenda, U.S. support may become more limited, increasing the likelihood of intensified Chinese pressure and Taiwan’s isolation (Scenario II: Taiwan’s Isolation). In such a scenario, South Korea, China, and Japan—countries deeply interconnected with Taiwan through industrial and trade structures—would face inevitable economic and industrial losses. This study analyzes the structural impacts of the Taiwan issue on these economies, with particular attention to ripple effects in the semiconductor sector. It further quantifies production and export multiplier effects using input-output (IO) analysis and assesses competitiveness and vulnerabilities in the semiconductor industry through trade statistics (TSI, RCA, ESI, Interdependence Ratio) and the Analytic Hierarchy Process (AHP).

Through industrial linkage analysis, Scenario I: Status Quo demonstrates that industrial linkages between Taiwan and the three East Asian countries—South Korea, China, and Japan—remain intact, generating positive spillover effects on production and exports. China exhibits strong production linkages with Taiwan, while South Korea shows robust export linkages. Japan maintains a relatively stable trade structure, particularly in intermediate goods and equipment exports. Taiwan continues to play a central role in the East Asian supply chain, especially in electrical and electronic equipment, precision machinery, metal, chemical, and general machinery sectors. This suggests that the region’s industrial cooperation structure is unlikely to be easily disrupted in the short term, even as U.S.-China strategic competition intensifies.

In contrast, Scenario II: Taiwan Isolation reveals that all three countries—South Korea, China, and Japan—would suffer significant economic shocks across industries, particularly in electrical and precision machinery. The analysis indicates total losses of $161.1 billion in production-induced effects and $371.9 billion in export- induced effects. South Korea would incur $13.79 billion and $51.18 billion in losses, respectively, with relatively modest production impacts but high sensitivity in export effects, highlighting significant supply chain dependency risks. China would face losses of $120.19 billion and $232.27 billion, respectively, with substantial impacts across industries, particularly in electrical and electronic sectors. Japan would incur losses of $27.15 billion and $89.45 billion, concentrated in metal and machinery-centric industries, raising concerns about intermediate goods supply stability. Overall, Taiwan’s industrial share and multiplier effects in electrical and electronic equipment and precision machinery are the largest among these economies, underscoring its strategic role in East Asia’s supply chain.

To analyze changes in semiconductor industry competitiveness among Taiwan, South Korea, China, and Japan, this study examined export-import structures and supply chain relationships across eight key semiconductor categories. Taiwan demonstrates high export competitiveness in foundry operations (notably TSMC) focused on system semiconductors, as well as individual devices and diodes. South Korea maintains a strong position in memory semiconductors. China holds significant market shares in silicon wafers, memory semiconductors, and discrete semiconductor components, while Japan excels in semiconductor materials, parts, and equipment, including integrated circuit and discrete components.

If Taiwan’s semiconductor exports were to cease, the impacts would be as follows: South Korea would face bottlenecks in system semiconductors, disrupting production and undermining competitiveness in high-value-added ICT industries such as smartphones, AI semiconductors, and telecommunications equipment. Supply disruptions of intermediate goods, including diodes and transistors, would lead to production delays and higher costs. China would urgently need to secure alternative suppliers for system and memory semiconductors, integrated circuit components, and silicon wafers, with supply gaps in high-performance chips creating critical vulnerabilities in AI and high-performance computing. Japan, heavily dependent on system and memory semiconductor imports, would face production setbacks in automotive and advanced manufacturing due to disruptions in automotive semiconductors and control chips. Additionally, a halt in exports to Taiwan could trigger secondary declines in Japan’s exports of semiconductor materials, components, and equipment.

According to the results of the Analytic Hierarchy Process (AHP) analysis, changes in Taiwan’s semiconductor supply chain are recognized as a complex variable encompassing risks across geopolitical, technological, supply chain, and economic dimensions. In Scenario I: Status Quo, where Taiwan’s semiconductor competitiveness strengthens, South Korea (0.3229) and China (0.2915) are the most affected. South Korea’s vulnerability stems from technological competition pressure with Taiwan and excessive supply dependency, whereas China’s vulnerability is driven by its strategic objective of narrowing the technological gap with Taiwan. Differences in perception among expert groups were identified: South Korean and Japanese experts assessed South Korea’s exposure as greater, while Chinese and Taiwanese experts assessed China’s exposure as greater.

In contrast, under Scenario II: Taiwan Isolation, where disruptions occur in the semiconductor supply chain, the United States (0.2960) is expected to be the most affected, followed by South Korea (0.2595), China (0.2379), and Japan (0.2066). This reflects the United States’ high dependence on TSMC, coupled with its semiconductor self-reliance still being in a transitional phase, such that supply disruptions from Taiwan could rapidly escalate into strategic risks. In this scenario, South Korean and Chinese experts assessed the impact on South Korea as greater, whereas Japanese and Taiwanese experts assessed the impact on the United States as greater. Overall, South Korea demonstrated high sensitivity in both scenarios, indicating that its industrial structure is particularly susceptible to changes in Taiwan’s supply chain and underscoring the urgent need for measures beyond addressing simple trade imbalances to mitigate industrial security risks.

Based on this analysis, the study recommends that South Korea strengthen its supply chain resilience and secure greater strategic autonomy to effectively respond to U.S.-China strategic competition and Taiwan-related risks. This requires investment in R&D across the full value chain, including the internalization of system semiconductor production, advancement of memory semiconductor technologies, and development of next-generation semiconductor technologies. Additionally, it is essential to restructure the semiconductor industry ecosystem as a national strategic sector and establish a virtuous cycle of technology development, talent cultivation, and capital investment.

Moreover, multi-layered response strategies are necessary, including supply chain diversification, localization of core components, and strategic stockpiling of key materials, as well as enhancing global value chain stability through multilateral cooperation with the United States, Japan, and the EU. South Korea must also play a leading role in restoring WTO functions and strengthening the multilateral trade system to help establish a sustainable trade order amid global trade uncertainties. In this context, it is critical to proactively explore mid- to long-term strategies to stabilize supply chains and reinforce industrial security through comprehensive analyses that anticipate structural shocks arising from U.S.-China strategic competition and Taiwan-related risks.

Global security conditions have become more uncertain than ever in recent years. In particular, the energy sector is experiencing rapid structural changes and a swift geopolitical realignment, while multiple factors—including the intensification of strategic competition between the United States and China, the prolonged Russia–Ukraine war, accelerated climate-change responses and energy transitions, and the launch of the second Trump administration in the United States—are intertwining to further deepen the instability of the international political order and the global energy market. Amid such a rapidly changing international environment, energy security is emerging as a core issue that combines national security, diplomatic strategy, and energy geopolitics. Against this backdrop, this study focuses on the strengthening cooperation between the Gulf Cooperation Council (GCC), regarded as a key region for global energy supply, and China, the world’s largest energy importer. China is actively promoting the development of its renewable energy industry and related technologies to mitigate its high dependence on external energy sources and to accelerate the transition toward a low-carbon society. The GCC, leveraging its immense fossil-fuel supply capacity, is simultaneously pursuing industrial diversification and energy transition, and in doing so is expanding its demand for external cooperation in the field of environmentally friendly energy. Accordingly, the two sides are forming a mutually complementary cooperative relationship in the areas of fossil energy and clean energy, rapidly deepening the scope and level of their cooperation.

South Korea also has a high dependence on energy imports, with a significant portion of those imports relying on the GCC. In this context, the expansion of energy cooperation between China and the GCC is highly likely to have direct and indirect impacts on South Korea’s energy security and its overall economy.

Accordingly, this study analyzes the current state of energy cooperation between China and the GCC amid changing energy-security and geopolitical conditions, and seeks to identify the characteristics of cooperation in each sector. Ultimately, it aims to draw policy implications that may serve as a reference for establishing South Korea’s diplomatic relations and energy-cooperation strategies with the GCC.

Before examining the current state of energy cooperation between China and the GCC, Chapter 2 categorizes and outlines changes in the global environment surrounding the two sides into four areas: shifts in U.S. and Chinese influence within the GCC; fragmentation of global supply chains and restructuring of energy supply chains resulting from the Russia–Ukraine war; energy-transition trends driven by climate- change response; and the energy policies of the second Trump administration in the United States. First, recent U.S. and Chinese influence within the GCC has shown contrasting patterns. The United States has long maintained a strategic relationship with the GCC centered on its role as a security provider, but after the 9/11 terrorist attacks and the Iraq War, it came to recognize the costs and limits of involvement in the Middle East. As a result, a trend has continued in which it gradually reduces its engagement and reallocates diplomatic and security resources to Asia and other regions. Above all, the rise in U.S. energy self-sufficiency brought about by shale-oil development has accelerated the reduction of U.S. involvement in the Middle East. In contrast, China has been steadily expanding its strategic presence in the GCC by strengthening cooperation in trade, infrastructure development, and advanced technologies, based on economic growth, rising energy demand, and the Belt and Road Initiative. Meanwhile, Russia’s invasion of Ukraine in 2022 has made the trend of supply-chain fragmentation particularly evident in the energy sector. Europe rapidly reduced imports of Russian crude oil and natural gas and strengthened its energy linkages with the United States and other allies. China’s expansion of energy imports from Russia, followed by increased imports from the GCC, is also aligned with this supply-chain restructuring trend. At the same time, the international community is pursuing a structural transformation of energy systems and the expansion of renewable energy to address the climate crisis and achieve carbon-neutrality goals. As of now, during this transitional phase of energy transformation, fossil fuels and clean energy sources coexist, and available energy sources such as LNG and nuclear power are being utilized as transitional energy resources. Nonetheless, as of 2024, fossil fuels still account for more than 80% of primary energy consumption. Accordingly, in the short term, competition to secure oil and natural gas is expected to unfold alongside the continued dual challenge of meeting carbon-reduction targets. Finally, since taking office, the second Trump administration has been swiftly pushing policy changes in the fields of energy and climate. In particular, the dismantling of the previous Biden administration’s clean-energy and carbon- neutrality policies has heightened uncertainty and change in the renewable-energy sector and in climate-change response. This has led to concerns about delays in U.S. carbon-neutrality efforts and a weakening of U.S. climate leadership within the international community. In addition, the second Trump administration is strengthening foreign sanctions, including in the energy sector, and these sanctions are exerting direct and indirect impacts on energy-cooperation relations between China and the GCC.

In Chapter 3, the study examines areas of mutual cooperation demand by outlining the energy-policy directions of China and the GCC. China has long regarded energy security as a core national-security task, as its external dependence on crude oil and natural gas has grown steadily. With its high dependence on external energy sources, China requires not only stable energy procurement but also strategic cooperation partners in the field of clean energy. In this context, cooperation with the Middle East—especially with the GCC countries—is essential for both strengthening China’s energy security and advancing its clean-energy transition. China’s energy cooperation with the GCC extends from ensuring stable supplies of traditional energy sources such as crude oil and natural gas to strategic-level cooperation needs encompassing joint development of renewable energy, hydrogen, nuclear power, and advanced energy technologies, as well as efforts to promote yuan-based settlement in energy trade. In addition, China seeks to build a mutually beneficial energy partnership by linking the Belt and Road Initiative with the development strategies of GCC countries. In short, the GCC, with its abundant energy resources and potential for renewable-energy development, is an indispensable cooperation partner for China’s energy security and energy transition, while also serving as a region that plays an important role in expanding China’s influence in the Middle East amid U.S.–China strategic competition. Meanwhile, the GCC is strategically expanding cooperation with China to secure stable energy export markets and strengthen capabilities for developing next-generation energy sources. As the world’s largest energy importer and a technological powerhouse with geographical proximity and strong infrastructure investment capacity, China is viewed by the GCC as an ideal partner.

In Chapter 4, based on the analyses in Chapters 2 and 3, the study describes the current status and characteristics of energy cooperation being pursued by China and the GCC, categorizing it into fossil fuels, petrochemicals, renewable energy, hydrogen, and nuclear power. First, an examination of China’s crude oil and LNG import trends over the past five years shows that it has maintained solid supply relationships with Saudi Arabia (crude oil) and Qatar (LNG). In the case of crude oil, China procures 30–40% of its total imports from the GCC, and while Russia and Saudi Arabia have alternated as China’s largest suppliers, imports from Russia increased after the onset of the Russia–Ukraine war in 2022 due to price competitiveness and geopolitical factors, but began to decline in the first quarter of 2025. By contrast, amid U.S.–China tensions and the suspension of U.S. crude oil imports, imports from Saudi Arabia saw a slight increase in the first quarter of 2025. China’s crude oil import volumes and supply sources have been changing in connection with various geopolitical variables. The volumes imported from major supplying countries have shown fluctuations over time due to multiple factors, including U.S. sanctions on major oil-producing countries, the Russia–Ukraine war, and U.S.–China trade tensions. In the case of LNG, China is pursuing a stable procurement strategy through long-term purchase agreements with Qatar and participation in investments in the North Field expansion project, and the LNG supply relationship between the two countries is expected to continue over the long term. Moreover, the expansion of LNG cooperation between China and the UAE is also noteworthy in terms of diversification of import sources and strengthening energy security. In this way, energy trade between China and the GCC shows a pattern in which mutual interdependence and strategic cooperation are becoming further reinforced as part of managing geopolitical risks and ensuring energy security.

China and the GCC are also pursuing industrial diversification and energy transition by forming mutually complementary cooperation structures in the petrochemicals, renewable energy, hydrogen, and nuclear-power sectors. In the petrochemical sector, large-scale cooperation projects are being promoted in both China and GCC countries. China, in response to slowing oil demand resulting from the expansion of new-energy vehicle adoption and the downturn in the real-estate market, is reducing the production of refined petroleum products and expanding the production of high-quality chemical products. The GCC, for its part, seeks industrial diversification through the development of the petrochemical industry. GCC countries display a tendency to use renewable energy to generate domestic electricity while exporting crude oil and LNG to maximize overseas sales profits. Although GCC countries have strong ambitions to achieve carbon- neutrality goals and expand renewable-energy development, the renewable-energy industry within the GCC remains in an early stage, making infrastructure development particularly important. From the perspective of GCC countries, strategic cooperation with China—which leads the global renewable-energy supply chain—is highly important. The GCC’s installation capacity in the area of renewable energy is rapidly expanding, with demand for solar power sharply rising. China currently dominates the global photovoltaic manufacturing supply chain, and is actively targeting the GCC as a strategic market amid U.S. and European import restrictions and pressures stemming from oversupply. Cases of solar-power projects in GCC countries involving Chinese participation show that China is pursuing the establishment of local solar-product manufacturing bases and the export of solar products. In the renewable- energy development goals of the GCC, wind power is also recognized as a key generation source, with wind-power capacity expanding mainly in Saudi Arabia, the UAE, and Oman. As one of the world’s largest exporters of wind-power equipment, China is cooperating with major GCC countries in various forms. Chinese companies not only supply key equipment but also undertake EPC roles in wind-power projects and, through the establishment of joint ventures, promote the manufacturing and assembly of key components locally within the GCC.

Cooperation between China and the GCC in the hydrogen sector can be understood as focusing primarily on green-hydrogen cooperation linked to renewable energy. GCC countries, with their abundant renewable-energy resources, and China, with its large-scale production facilities, technological capabilities, and research capacity, form a mutually complementary cooperation structure. Based on its large-scale facilities, technological strength, and research capability, China is pursuing various cooperative projects in hydrogen and related industries with GCC countries such as Oman. In the nuclear-power sector, China regards Saudi Arabia and the UAE as key partners and is pursuing cooperation on intergovernmental agreements, reactor operation, fuel supply, personnel training, uranium and thorium exploration, as well as nuclear safety and public security. In 2025, China and the GCC held the “First China–GCC Forum on the Peaceful Use of Nuclear Technology,” during which they discussed next- generation nuclear technologies such as SMRs, workforce development, technical exchange, and potential joint projects. Meanwhile, China and the GCC are strengthening their strategic partnership by achieving their mutually complementary goals of energy security and industrial diversification through the Belt and Road Initiative. China views the GCC as a key cooperation partner in the Belt and Road Initiative and has pursued cooperation in energy trade and energy-infrastructure development. Each GCC country is also seeking economic diversification and energy transition by linking its national development strategy with the Belt and Road Initiative. China emphasizes Belt and Road cooperation with countries around the world, but the GCC is regarded as a particularly important partner in terms of building a strategic partnership to respond to U.S.–China strategic competition, strengthening China’s influence in the Middle East, and consolidating energy cooperation.

Lastly, Chapter 5 evaluates and forecasts energy cooperation between China and the GCC and presents implications for South Korea. Amid multiple external factors—such as recent changes in the global geopolitical environment, transformations in energy structures, the Russia–Ukraine war, and U.S. sanctions in the energy sector—energy cooperation between China and the GCC has developed into a mutually complementary relationship. Based on the analysis in the main text, the evaluation and outlook for China–GCC energy cooperation can be summarized as follows. First, from China’s perspective as the world’s largest energy importer and a country that prioritizes energy security above all, the GCC is a strategic partner possessing not only abundant crude oil and natural gas resources but also significant potential in renewable energy sectors. Second, amid uncertainty in the global energy supply chain following the outbreak of the Russia–Ukraine war, mutual interdependence between China and the GCC has deepened. From the perspective of securing stable export and import markets for crude oil and LNG, the strategic interests of China and the GCC align. Accordingly, the two sides have built a mutually stable energy-supply relationship amid geopolitical risks and volatility in the global energy market. During the transitional phase of energy transformation, the fossil-fuel supply relationship between China and the GCC is expected to continue for the time being. China has been reducing its imports of U.S. energy due to factors such as the tariff war with the United States, and the GCC’s energy exports to China are expected to further expand as a result. Third, cooperation between the GCC and China in the clean-energy sector has deepened as the GCC seeks industrial diversification alongside efforts to transform its current energy structure. Chinese solar and wind companies are actively participating in local power-plant construction, equipment supply, technological cooperation, and ecosystem development within the GCC. Meanwhile, due to U.S. sanctions targeting China’s renewable- energy sector, China’s demand for cooperation with the GCC is expected to grow further from the perspective of market and production-base diversification. Fourth, while U.S. influence within the GCC is declining, China has been strengthening comprehensive cooperation with the GCC. As long as China’s demand for fossil-fuel imports and the GCC’s demand for development in the clean-energy sector continue, cooperation between the two sides is highly likely to deepen. However, the GCC faces the need to pursue balanced diplomacy between the United States and China due to issue-specific interests and strategic considerations, such as foreign-policy and security concerns and the pursuit of economic pragmatism. Taken together, energy cooperation between China and the GCC is expected to continue for the time being in line with their strategic needs, but the pace of cooperation may vary by energy sector depending on external variables such as the degree of U.S. engagement in the Middle East under the second Trump administration, the pattern of U.S.–China strategic competition surrounding the GCC, the Russia–Ukraine war, and the political situation in the Middle East. Recently, the GCC has shown a tendency to strengthen cooperation with the United States to foster its AI industry, and the United States is requesting the exclusion of China in AI cooperation. From the perspective of the GCC, which seeks to promote convergence between the AI and energy sectors, it will be necessary to observe the extent to which it will continue energy cooperation with China in the future. It is also noteworthy that GCC countries, which have so far relied primarily on Chinese renewable- energy products and technologies, are making efforts to localize renewable-energy component manufacturing to reduce dependence on a single supply source.

South Korea relies on the GCC for a significant share of its crude-oil imports and ensures supply stability through measures such as joint crude-oil stockpiling projects. In addition, by expanding cooperation with the GCC across the energy sector—including refining and petrochemicals, clean energy, hydrogen, and nuclear power—South Korea is enhancing its energy security and industrial competitiveness while also contributing to the attraction of foreign investment. Accordingly, the GCC is a highly important strategic partner for South Korea. Based on the current status and characteristics of China–GCC energy cooperation analyzed in the main text, this study presents the following implications for South Korea. First, the Korean government needs to build a relationship of trust with GCC countries from a longer-term perspective and establish cooperation platforms for this purpose. Second, it is necessary to pay attention to the possibility that the GCC may pursue strategies to reduce its dependence on China- centered renewable-energy supply chains and diversify its cooperation partners. From this perspective, South Korea can explore opportunities for cooperation with the GCC. Third, in the refining and petrochemical sectors, South Korea should concretely explore cooperation strategies and ways to establish long-term partnerships that differentiate it from China in areas where it is currently cooperating with the GCC. Strengthened strategic cooperation between China and the GCC through joint projects underway in both China and GCC countries may increase risks for South Korea’s petrochemical industry, which is currently experiencing difficulties. To respond to the complex risk factors that China–GCC cooperation may pose to South Korea’s domestic industry, it is essential to monitor cooperation trends between the two sides while actively formulating measures to enhance South Korea’s competitiveness. Fourth, in the solar-power sector, South Korea may consider: ① entering the U.S. market more actively, where Chinese products are excluded; ② supporting Korean firms’ entry into the GCC in the premium-product segment of the small-scale solar-power market; and ③ pursuing cooperation in which Korean companies participate as project developers in GCC solar-power projects while considering Chinese companies as joint developers or selecting Chinese firms as EPC contractors. Fifth, based on the UAE’s achievement of being the first GCC country to commercialize nuclear-power generation through cooperation with Korea Electric Power Corporation (KEPCO), South Korea should actively enter new nuclear-power markets in the GCC, such as Saudi Arabia. Although China is expanding its cooperation base in the nuclear-power sector by strengthening its strategic partnership with the GCC, South Korea has comparatively strong competitiveness in terms of winning and completing nuclear-power projects. Chinese firms are also expected to bid on Saudi Arabia’s nuclear-power project, and South Korea needs to observe China’s nuclear-cooperation trends with the GCC from various angles. In addition, as major GCC countries are paying close attention to the SMR sector, South Korea should further expand its cooperation base related to SMRs in the GCC nuclear-power market.

Since Russia’s invasion of Ukraine, the foreign policy orientation of Northern European countries, including Sweden and Finland, as well as the three Baltic States—Estonia, Latvia, and Lithuania—has undergone significant changes. Sweden and Finland, which had historically maintained a position of neutrality, joined NATO in 2023 and 2024, respectively. These developments, along with broader regional concerns regarding geopolitical instability and security, have contributed to the adoption of policies aimed at reducing political and economic dependence on Russia.

The Baltic States, in particular, are actively diversifying their external cooperation channels across key sectors such as energy, trade, and investment. This trend aligns with the European Union’s REPowerEU strategy, which since 2022 has encouraged member states to reduce reliance on Russian fossil fuels—especially pipeline natural gas—through the expansion of liquefied natural gas (LNG) imports and the development of alternative energy sources. In addition to the energy sector, cooperation with Russia has declined across a wide range of industries, including electronics, machinery, agriculture, food, logistics, and maritime shipping. Concurrently, economic and strategic partnerships with the EU and the United States are being actively expanded.

The defense and security sectors are also experiencing structural change. With Sweden and Finland’s accession to NATO and increased security needs among the Baltic countries, cooperation in defense production, procurement, and exports is expanding. South Korea has already enhanced its defense industry presence in Central and Eastern Europe, most notably in Poland, and similar opportunities are emerging in Northern Europe and the Baltic region. These countries are also positioning themselves as key participants in Ukraine’s reconstruction process, with high-level policy discussions—including international conferences—actively ongoing.

In response to this shifting, the South Korean government is broadening its engagement through various initiatives, including increased grant assistance for Ukraine’s recovery, the strategic use of the Economic Development Cooperation Fund (EDCF), and the reinforcement of institutional and local cooperation networks. The Baltic States, having undergone their own transitions from former Soviet republics to EU member states, provide valuable reference points for Ukraine’s post-war reconstruction and potential EU accession. This creates opportunities for enhanced Korea–Baltic cooperation in sectors such as defense, energy, digital technology, and logistics.

Recent shifts in Northern Europe and Baltic States policies toward Russia reflect a broader realignment in international partnerships. While each country varies in its approach—ranging from assertive responses by Finland and Lithuania to more moderate adjustments in Estonia and Latvia—public attitudes toward Russia have become increasingly critical since Russia’s invasion of Ukraine, and this has been reflected in concrete policy decisions in both the political and economic domains.

These policy shifts are not short-term reactions, but rather are evolving into long-term strategies for external cooperation. Nevertheless, the full replacement of previously existing cooperation networks remains an ongoing challenge, underscoring the need for new, stable partnerships. In this context, Europe—with its high purchasing power and policy alignment with democratic economies—offers considerable potential for Korean companies seeking to expand their presence.

This study examines the evolution of anti-Russia policies in Northern Europe and the Baltic States, analyzes changes in the regional demand for international economic cooperation, and identifies strategic implications for South Korea. In addition to a literature review, the study incorporates qualitative insights obtained through field research, expert consultations, and engagement with the Embassy of the Republic of Latvia to the Republic of Korea. Particular attention is given to the defense and infrastructure sectors, where future cooperation models may be developed. With the support of the Embassy of the Republic of Latvia to the Republic of Korea and the Investment and Development Agency of Latvia (LIAA), fieldwork was conducted in Riga from April 21 to 25, 2025, during which the research team carried out policy interviews and expert discussions to examine the trajectory of anti-Russia strategies in the Baltic States and explore the potential for expanding Korea–Baltic cooperation, including opportunities for Korean defense industries in local markets.

Based on this analysis, the study presents the following four policy recommendations: 1) Expand South Korea’s EU cooperation framework to include Northern Europe and the Baltic region; 2) Identify strategic industries aligned with regional characteristics and development priorities; 3) Pursue integrated projects that address cross-national needs across the five countries; and 4) Develop mechanisms for joint participation in large-scale European initiatives through strengthened bilateral and multilateral partnerships.

Korea and Japan normalized diplomatic relations with the signing of the Treaty on Basic Relations on June 22, 1965. In 2025, the two nations mark the 60th anniversary of this normalization. Over the decades, both countries have developed their relationship through active exchanges and cooperation in politics, economics, society, and culture, underpinned by the shared values of liberal democracy and a market economy. However, historical disputes—such as the issues of wartime “comfort women” and forced labor, visits by Japanese officials to the Yasukuni Shrine, and territorial disputes over Dokdo (Takeshima in Japan)—remain unresolved. These tensions continue to negatively affect broader cooperation.

Against this backdrop, this study focuses on envisioning a future- oriented relationship. This concept emphasizes overcoming historical entanglements that hinder progress on cooperative agendas. By considering changing circumstances surrounding bilateral ties, it presents a long-term vision for Korea–Japan relations looking toward 2050, based on comprehensive analysis across various fields.

1. Diplomacy and Security: Future Vision 2050

Korea and Japan must establish themselves as responsible partners in defending democracy and a rules-based order, while jointly shaping a regional multilateral security architecture. In the context of U.S.–China strategic competition, both countries should take on proactive roles as designers of world order working to prevent war. Key measures include: Building early warning systems, Enhancing operational information- sharing technologies, Expanding public diplomacy for mutual understanding, and Strengthening trilateral Korea–U.S.–Japan cooperation to ensure sustained constructive U.S. engagement.

Looking ahead, if conditions emerge for North Korea to rejoin the international community and pursue economic development, Korea must already have a clear mid- to long-term strategy of proactive engagement. Japan’s role would be critical in this process. Coordinated engagement by Seoul and Tokyo would benefit both countries, requiring the establishment of a cooperative framework. Proposals include creating a Northeast Asia Development Bank to support North Korea’s reform, opening, and infrastructure development, serving as an institutional framework to manage the involvement of multiple state actors.

On energy and climate issues, Korea and Japan should deepen cooperation to strengthen energy security and respond to the climate crisis. This includes joint LNG procurement and stockpiling systems, collaboration on Alaska LNG projects, and nuclear cooperation such as securing enriched uranium supplies. Strategies proposed are: Establishing a high-level intergovernmental dialogue, Creating joint investment and information-sharing platforms among private companies, Expanding next-generation talent exchanges, and Linking bilateral cooperation with regional/global initiatives such as ASEAN+3 and APEC.

2. Advanced Technology and Economic Cooperation

The study identifies humanoid robotics as a promising area for Korea–Japan collaboration, based on comparative analysis of long-term national strategies and mission-oriented R&D programs. A three-stage roadmap toward 2050 is proposed, covering both technological and market/ application cooperation. Such collaboration could not only solve social challenges and enhance global competitiveness but also serve as an innovative model spreading across Asia.

In the economic field, supply chain cooperation is a top priority. Both nations face vulnerabilities due to high external dependence on energy, food, and minerals. With similar levels of economic development and shared values, Seoul and Tokyo should institutionalize economic security and industrial cooperation, eventually pursuing binding trade agreements.

Financial cooperation is another priority. The two countries should extend or renegotiate the bilateral currency swap agreement, set to expire in March 2026, and expand its scale. A yen–won swap mechanism could also be used for trade settlements, broadening its utility.

The study highlights green economy cooperation, focusing on hydrogen and ammonia. By sharing a vision for carbon neutrality by 2050, the two governments can lay the groundwork for long-term cooperation. The situation calls for “practical” agendas to address shared challenges in realizing a hydrogen society.

In the blue (marine) economy, opportunities for cooperation include: Joint development of seabed resources (oil, gas, rare earths) and offshore wind expansion; Technology collaboration on smart ports, autonomous vessels, and maritime communication; and Building interoperable port automation systems and smart port networks.

The upcoming termination of the Korea–Japan Continental Shelf Agreement demands a long-term vision. Considering China’s persistent claims and global climate change, Seoul and Tokyo could explore turning this area into a trilateral (Korea–Japan–China) cooperation zone, or even a “Korea–Japan–China+U.S.” arrangement, in light of the U.S.–China strategic competition. Korea should take the initiative to make the Joint Development Zone (JDZ) a space for cooperation, not competition.

Finally, the study stresses the role of minilateral cooperation within platforms such as the RCEP and IPEF. Such arrangements can generate tangible outcomes despite limitations in bilateral institutionalization. Korea and Japan should use existing agreements strategically, strengthen RCEP-based Korea–Japan–ASEAN cooperation, and lead digital transformation initiatives. Proposals include: Leading discussions on rules of origin and carbon reduction in RCEP, Launching joint digital pilot projects, and Supporting ASEAN digital capacity-building.

3. Social Dimension and People-to-People Ties

Both Korea and Japan face demographic crises of ultra-low fertility, aging, and population decline, leading to regional extinction—i.e., the disappearance of local communities. Policies for 2050 must focus less on raising birth rates and more on structural adaptation. Cooperation could include policy exchanges, youth and startup collaboration, digital regional revitalization, and cultural-tourism projects.

The study emphasizes the central role of youth in shaping future relations. Exchanges through culture, travel, and social media have brought younger generations closer than ever. However, asymmetries exist: in 2024, two-thirds of bilateral visitors were Korean, and Korean participation in student and youth exchange programs far exceeded Japanese. Reducing this imbalance is key to fostering mutual understanding.

The role of the media is also crucial. Korean and Japanese media should move beyond sensationalism in reporting on historical and territorial disputes, providing balanced, context-rich coverage. To this end, proposals include creating a Korea–Japan Media Monitoring Committee and launching a joint “Future Journalism” program at leading universities of both countries.

For cultural industries, three proposals are made: Government cooperation to expand exports of cultural content, Joint measures against illegal overseas distribution, and Support for Korean startups entering the Japanese market.

4. Conclusion: Entering a New Era The year 2025 represents both reflection on the past 60 years and exploration of the next 60—effectively marking the first year of a new Korea–Japan era. Yet both countries face unstable political leadership and external pressures from “Trump 2.0,” with heightened tariff and alliance burden-sharing demands limiting space for long-term vision.

Nevertheless, bottom-up dynamics are favorable: public perceptions are more positive than ever, and the two economies are deeply intertwined. Both nations share a vital interest in defending openness and free trade amid global protectionism.

Therefore, the future vision must move beyond bilateral reconciliation, instead focusing on cooperative agendas that ensure the well-being, prosperity, and welfare of future generations. Despite domestic political risks and external challenges in 2025, the responsibility of the current generation to contribute to this vision is more urgent than ever.