South Korean Lead in US Trade Pact May Help Limit Chip Spats

 

South Korea will spearhead efforts by the US-led Indo-Pacific Economic Framework (IPEF) in Asia to secure global supply chains through a cooperative network, potentially reducing the risk of trade conflicts with Japan.

Seoul will chair the IPEF’s network for responding to supply chain issues, with Japan as vice-chair. This network will ensure consultation among all 14 IPEF nations regarding any actions that could critically impact key supplies.

“This reduces the potential for trade spats between South Korea and Japan that we have seen in the past,” said Sim Jinsu, the director general for new trade strategy and policy. “It strengthens the stability of ties between the two.”

In 2019, South Korea's semiconductor production was pressured when Japan imposed export controls on key chipmaking materials. Although resolved since a summit last year, the threat of new disruptions remains due to regional political and historical tensions.

IPEF commits each member to minimizing unnecessary barriers affecting supply chains. Unilateral export controls by Japan would violate the agreement’s spirit, according to Sim. While not guaranteeing a future free of trade spats, the pact aims to make trade restrictions more challenging.

For the US, the leadership roles of South Korea and Japan support its agenda of solidifying ties between its two largest Asian allies, whose relations have been strained by historical disputes.

The Crisis Response Network (CRN) underpins the supply chain deal forged last year at IPEF. South Korea, as chair, can summon a meeting of member nations within two weeks of any supply chain emergency to coordinate a joint response.

South Korea plans to conduct mock drills in September, focusing on securing urea, a key input for diesel trucks, from China. Future simulations may involve semiconductor and battery-related materials.

Simulations will help draft contingency plans, enable early warnings, fast-track customs clearance, and provide alternative transportation routes among members.

IPEF, part of US President Joe Biden's effort to counter China’s economic influence, includes India, Vietnam, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and New Zealand, representing about 40% of global economic output.

The IPEF supply chain agreement benefits from the mix of resource-rich nations like Australia and industrial powerhouses like Japan.

South Korea relies heavily on trade for economic growth and finds itself between the US and China in global clout. Leading the IPEF supply chains allows Seoul to amplify its voice in global trade.

IPEF aims to avoid supply-chain bottlenecks like those during the Covid-19 pandemic. It also focuses on renewable energy transition and fair economy issues related to taxation and corruption.

The final trade pillar deal remains elusive due to contentious issues like digital commerce and labor rules. Uncertainty persists with Republican presidential nominee Donald Trump vowing to terminate IPEF if elected.

Regardless of the US election outcome, South Korea will continue efforts to strengthen and stabilize supply chains, said Sim.

Key Takeaways:

• South Korea to lead IPEF’s supply chain network with Japan as vice-chair.
• This leadership role aims to reduce trade conflicts and enhance supply chain stability.
• IPEF includes 14 nations, representing about 40% of global economic output.
• South Korea plans mock drills to draft contingency plans and ensure supply chain resilience.
• The US aims to solidify cooperative ties between its largest Asian allies.
• IPEF seeks to prevent supply-chain bottlenecks and promote renewable energy and fair economy issues.