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Major Issues of Friction between the U.S. and China and New Directions of Economic Cooperation between Korea and China

Author Pyoung Seob Yang and Jiwon Choi Series 21-03 Language Korean Date 2021.05.14

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   As friction between the U.S. and China intensifies, this poses a huge burden on the Korean economy, which is highly dependent on China. Under these circumstances, questions are being raised about whether Korea can continue its strategy of aligning with the United States on security issues and with China in the economic sector. This study seeks to clarify what the main issues of friction between the U.S. and China are, and what positions and principles Korea should adhere to concerning each issue.
   The U.S.-China friction can be seen as arising from the clash between the U.S.’ vision of “America First” and the “China dream.” Xi Jinping’s leadership, which was launched in 2012, presented China’s dream of transitioning from an economic and military power to a great power. The U.S. administration recognizes this dream as a threat and challenge to the U.S. and is pressuring China. China perceives this pressure applied by the U.S. as an attempt to undermine its key interests and responds accordingly. The Trump administration defined the situation as a long-term strategic competition between the two systems and declared a “competitive approach” to China in a report titled “U.S. Strategic Approach to the People’s Republic of China” released in May 2020. In another report, “The Elements of the Chinese Challenge,” released by the U.S. Department of State in November 2020, the U.S. and the world are described as facing a new era of “great power competition” caused by the Chinese Communist Party. A U.S. congressional report released in December 2020 also described this as a “strategic competition” between China and the United States. In response to U.S. pressure, China recognized the conflict between the U.S. and China as a challenge to its development rights and declared a long-term war, regardless of the outcome of the U.S. presidential election. It has adopted a “dual circulation” strategy that puts large-scale domestic circulation first as the basic direction of long-term response and mutually drives both domestic and international circulation.
   In this study, the issues between the U.S. and China were divided into regulation of unfair practices on the part of China, China’s strategy to become a “strong country” with world-class forces amid the U.S.-China technology decoupling, and the U.S.-China strategic competition over ideology and values. First is the conflict over subsidies, intellectual property rights, developing country status, cyber security, and environmental issues raised by the United States. The second issue is China's strategy to become a strong country and decouple from U.S. technology, leading to the China Manufacturing 2025 initiative, Military-Civil Fusion (MCF) strategy, China Standard 2035 project and U.S.-China competition over network security. The third issue involves U.S. efforts to check the Belt and Road Initiative (BRI), perceiving this as a strategy to expand Chinese influence in the Asia-Pacific region. The U.S. recognizes the Belt and Road Initiative as both an economic challenge for the U.S. and a security challenge, and keeps China’s influence in check by pursuing the Indo-Pacific strategy. The fourth is pressure on China based on universal values. The U.S. is expanding its pressure on China by politicizing the issues of its party-state system, democracy, human rights, religion, and the South China Sea dispute.
   The U.S.-China friction can be both an opportunity and a threat to Korea, which is highly dependent on the U.S. and China. In the short term, China will be able to provide Korea with new opportunities if it improves external openness and transparency and takes a domestic- oriented growth strategy. However, in the process of U.S. pressure on China, Korean companies tied to the value chain will face immediate difficulties in exporting to China. It is also impossible to rule out the possibility of another “THAAD situation” unfolding as the U.S. and China pressure Korea to choose a stance on particular issues. In the mid- to-long term, should China respond by increasing its independent self- reliance in technology, this could pose a threat if China develops domestic alternatives to Korean imports. However, if China responds by opening up and expanding cooperation with neighboring countries in new industries, this could be a new opportunity for Korea. If the friction between the U.S. and China is prolonged, the relationship between Korea and China is expected to enter a new period of transition, where individual events develop into a phase and structural transformation begins. It will be necessary to assess the threats and opportunities accompanying the friction between the U.S. and China, and to prepare effective response strategies.
   Faced with pressure from the U.S. and China to choose one side, Korea will have to establish a set of principles to apply in situations where it proves impossible to maintain a stance of strategic ambiguity. This study presents new directions and tasks for Korea-China cooperation in the era of friction between the U.S. and China, namely in the areas of: adjusting Korea’s dependence relations with China, stabilizing the value chain in preparation of the U.S.-China decoupling, East Asian regional cooperation, and response measures to changes in China's strategy. In particular, in this study, an online survey of Chinese experts in Korea explored the direction of Korea’s response to U.S. and Chinese pressure to take one side. It is necessary to redefine China’s strategy by comprehensively judging China’s influence on the Korean economy, the future potential of the Chinese market, and the possibility of cooperation. First, Korea should redefine its position on each issue based on: the principle of securing national interest and minimizing damage, the principle of a fair market economy, respect for universal values, and the principle of multilateralism. Second, a new strategy is needed amid rapidly changing U.S.-China relations. Despite the friction between the U.S. and China, there is no significant change in China’s importance as a market and the importance of the U.S. as a crucial security ally. In this regard, the current structure of aligning Korea’s position with China in economic issues and with the U.S. on security issues will continue, but depending on the pending issues of friction between the U.S. and China, principles and response strategies need to be determined on a case-by-case basis.

 

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