South Korea views new US rules that favor American-made electric vehicles and batteries as a “betrayal,” a senior official in Seoul said, an issue that threatens to complicate economic and security cooperation between the close allies.
The dispute stems from provisions in the Inflation Reduction Act signed last month by President Joe Biden, which includes tax credits of as much as $7,500 for purchases of electric vehicles made in North America. That could disadvantage major South Korean brands like Hyundai and Kia, which don’t have operational EV plants in the US.
South Korean President Yoon Suk Yeol’s government views the measure as unfair after a string of big US investment announcements by the country’s companies, said the official, who asked not to be identified discussing internal deliberations. While Seoul hasn’t decided to tie cooperation on the issue to other items on the US’s economic agenda, that couldn’t be ruled out, the official said.
The friction risks Biden’s efforts to build a tighter network of partners to counter China’s rising influence, as South Korea is key in initiatives such as the Indo-Pacific Economic Framework and the so-called Chip 4 Alliance of major semiconductor manufacturing nations. It has clouded Yoon’s campaign promise to bolster ties with the US on economic issues, as well as security.
The US legislation also created a rare bit of agreement in South Korea’s bitterly divided parliament this week, when it overwhelmingly passed a resolution expressing concern.
“South Korea may consider the IRA like being stabbed in the back,” said Cheon Seong-whun, a former security strategy secretary under former conservative President Park Geun-hye. “After putting in that much amount of investments, the South Korean administration, as well as its public, expected the same amount of economic benefits back from the US in the form of market accessibility.”
Yoon’s office said it is “working closely with Washington in different levels” for a “swift and smooth settlement.” It didn’t elaborate.
The US has agreed to talks with South Korea on the legislation, South Korea’s trade ministry said Thursday, and Yoon is expected to bring up the matter during a visit to the US later this month. South Korea’s chief trade negotiator, Ahn Duk-geun, will meet Trade Representative Katherine Tai early next week before attending the IPEF meetings scheduled to start Sept. 8 in Los Angeles.
“We take the Republic of Korea’s concerns seriously and stand ready for serious consultations,” Jose W. Fernandez, undersecretary of state for economic growth, energy and the environment, said in a statement. “We will have more details in the coming months as we begin the domestic rule-making process.”
Yoon made a “deadly mistake” by not holding an in-person meeting with US House Speaker Nancy Pelosi when she visited South Korea last month, a second person familiar with the matter said. Such a meeting could have provided a crucial chance to seek changes ahead of the bill’s passage, the person said.
Yoon’s administration has remained non-committal about joining the Chip 4 Alliance, a new group of major powers that also includes the US, Taiwan and Japan and is aimed at safeguarding the supply of semiconductors. China’s opposition to the move could blow back on South Korea’s chip makers.
The US law requires carmakers to assemble their EVs in North America to receive subsidies, but Hyundai doesn’t yet have any operational electric car plants there. Meanwhile, all three of South Korea’s main battery makers — LG Energy Solution Ltd., SK On Co. and Samsung SDI Co. — import most of their critical minerals from China.
The disadvantage would slow down Hyundai’s performance in the US, which has placed itself second in EV market share after Tesla in the US this year. South Korea invested a total of to $27.6 billion to the US last year. Hyundai is planning to spend $5.5 billion building EV and battery facilities in Georgia.
More than 35,000 jobs are expected to be created in the US by 34 South Korean companies, mostly in the battery industry, according to US lobby group Reshoring Initiative.
South Korean Trade Minister Lee Chang-yang will also visit the US this month to lobby against the new measures, saying in August the legislation contains “details that would put a burden on our companies, raising concerns in South Korea, Germany and Japan, which are also exporting electric cars to the US.”
Lee’s US visit will add pressure after South Korea sent a letter to Tai’s office expressing concerns that the Inflation Reduction Act may breach the US-Korea Free Trade Agreement and World Trade Organization rules.
Still, Representative Brendan Boyle, a Pennsylvania Democrat on the House Ways and Means Committee, expressed doubt that his trade-focused panel would take up the issue ahead of the midterms.
“I care very deeply about a relationship with the Republic of Korea,” said Boyle, who toured a Hyundai plant last year during a visit to South Korea. “Do I see us wading in right before the election or right after given all the other things we need to do? I would be rather surprised.”
(By Jeong-Ho Lee and Heejin Kim, with assistance from Iain Marlow, Laura Davison and Ramsey Al-Rikabi)