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| Business leaders are present at a press conference on new regulations on occupational accidents held earlier this month. / Yonhap |
Real challenge will be walking tightrope between US, China
By Kim Bo-eun
Businesses are keeping a close eye on changes in industrial policy following the inauguration of U.S. President Joe Biden, given the Korean economy's high dependency on trade.
They are observing developments as Biden immediately seeks to undo Trump's policies ― announcing plans to rejoin the Paris climate agreement on his first day as President.
The environment was a major focus of Biden's election pledges. He has vowed to have the U.S. reach net zero emissions by 2050 and to invest $2 trillion in clean energy and infrastructure
This is expected to benefit the renewable energy sector, as well as electric vehicle and battery makers, which are currently working with U.S. entities.
"The drive to boost the green industry presents opportunities for local businesses," Kim Mun-tae, director of economic policy at the Korea Chamber of Commerce & Industry (KCCI), said.
"But given the same opportunities are presented for businesses around the world, local companies will need to come up with specific plans to seize those arising from changes in the business environment. The government's role in fostering and supporting new green industries will also be crucial."
Biden has also stated plans to make major research and development investments in new technologies such as artificial intelligence and 5G, as well as pharmaceuticals and biotechnology.
The push for greater competitiveness in information technology is set to boost demand in the IT industry. The administration is expected to continue to cut off Chinese technology companies, which could present opportunities for Korean firms. Biden has placed an emphasis on strengthening ties with allies, and such an approach may be used to further pressure China.
But Biden's promise to prioritize American suppliers and products made in the U.S. could hurt foreign businesses. This points to the need for local companies to increasingly partner with U.S. firms, as in the case of Hyundai Motor and Apple, which are in talks for the Korean carmaker to assemble the IT giant's upcoming EVs.
Meanwhile, the forecast for the petrochemical and steel industries are cloudy. The administration is reviewing the introduction of a carbon tax, which could be imposed on imported goods.
Investments into building infrastructure to boost the U.S. economy would bode well for the steel industry, but this will only work to the benefit of U.S. steelmakers if tariffs on imports are maintained. U.S. steel industry associations sent a letter to Biden earlier this month, urging him to keep the 25 percent steel tariffs on imports in place.
"Steelmakers could shoulder greater expenses due to the carbon tax that is expected to be introduced. Traditional car manufacturers also face immense expenses to make the switch to technology for and production of eco-friendly vehicles," Moon Jong-chol, a research fellow at the Korea Institute for Industrial Economics and Trade, said.
"Manufacturers of steel and automobiles also face risks of trade protectionism as unionized workers at U.S. companies exert considerable influence. They will need to secure carbon credits and seek greater bargaining power with the U.S. government."
Are local businesses prepared for policy changes?
In a poll conducted earlier by the KCCI on 300 local manufacturers, the sectors of rechargeable batteries, electronics, petrochemicals and semiconductors were expected to benefit under the Biden administration.
Companies expected the business environment to improve based on greater stability in global trade, new opportunities in green industries and greater predictability of U.S. policy. They cited continued pressuring of China, minimum wage hikes and strengthened environmental regulations as risks.
Some businesses stated that they raised their export targets, while others said they plan to develop new businesses amid expected changes in the business environment.
But in the poll, 40 percent of them said they were unprepared for the U.S.' new green policies. They also feared a rise in oil prices based on forecasts of reduced crude oil supply.
Greatest challenge will be navigating between US, China
The trade dispute between the U.S. and China has rattled the semiconductor industry, and lingering tension raises risks for Korea.
"This is a core industry for Korea. The possibilities of an escalating feud present an extremely tricky situation, because China is Korea's largest client, but that doesn't mean Korea can disregard relations with the U.S.," Moon said.
"But if Korea adheres to possible trade restrictions imposed on China, this would reduce Korea's business. This could possibly be the most sensitive issue Korea faces, which is trickier than the steel or auto industries and an issue that requires diplomatic technique," he said.
Institute for Global Economics Chairman Jun Kwang woo said, "The tension will last given superiority in cutting-edge technology is a key part of the power struggle between the economies."
"This can present opportunities as collaboration with Korea can become important for the U.S. as it cuts off Chinese entities. However, this will come at a cost, which makes this a highly delicate issue for Korea. Korea should try not to become swept up in the conflict, but regardless, seek to heighten its global competitiveness in the industry."
