Tensions with North Korea have been rising recently. Pyongyang has launched as many missiles in the last month as it did all of last year, while continuing to refuse to engage in talks over its nuclear weapons program. However, despite the continued security risk presented by North Korea, the South Korea-U.S. alliance is also adapting to broader trends to place a greater emphasis on technological cooperation.
The shift toward a deeper focus on technological cooperation between the United States and South Korea is being driven by three factors. The first relates to the effects of globalization on China-U.S. competition. As the United States prepares for a potentially decades-long great power competition with China, the economic dynamic between the United States and China has shifted. China has replaced the United States as the top trading partner for many countries. In 2001, the United States was the top trading partner for 80 percent of the world, but now 120 countries, including U.S. allies such as South Korea, Japan, and the EU count China as their largest trading partner.
The effects of globalization, however, run deeper. Globalization has helped spur China’s efforts to catch up to the U.S. technologically, while weakening the United States’ own industrial base, especially in critical areas such as semiconductors. The need to shore up the U.S. industrial base is pushing the United States to turn to allies such as South Korea.
We are already seeing some of the initial steps in this direction. In conjunction with the Moon-Biden summit last year, South Korean firms announced investments of nearly $40 billion to build up the U.S. industrial and R&D base, including Samsung’s decision to build a second semiconductor fab in the United States.
The current global shortage in semiconductors, which is largely a reflection of increased demand for consumer durables, only further highlighted South Korea’s importance to the United States. South Korea’s semiconductor industry accounts for 20 percent of the global market for semiconductors. In the memory sector, Samsung and SK Hynix account for around 70 percent of the DRAM market and nearly 50 percent of the NAND flash memory market.
On the corporate level, only Samsung, along with Taiwan Semiconductor Manufacturing Company (TSCM), is capable of producing the world’s most advanced semiconductors. It is also partnering with Harvard University to develop a new type of semiconductor based on how the human brain functions.
The second factor is technological transformation. Great power competition can often turn on the ability of great powers to harness the leading edge technologies of their day, and competition between China and the United States will likely follow that pattern.
Much of the focus during the pandemic has been on supply chain shortages, but the pandemic has also increased the pace of digitalization. Digitalization impacts how individuals consume goods, but also helps to boost technologies such as AI that support the development of new technologies and enhance existing ones. Between 2021 and 2025, the Asia Development Bank estimates that 40 percent of GDP growth will come from digitalization in Asia alone. Shaping the development of digital technologies to ensure that they are inclusive and harnessing their potential in areas such as AI will be a critical component of great power competition going forward.
Areas such as AI will be especially critical as they have the potential to not only enhance economic growth and cybersecurity, but also change how military conflicts take place. New technologies could increase the prospect of more regularized grey zone tactics to challenge the alliance.
Digitalization, however, isn’t the only economic transformation taking place. Climate change is driving a transformation in energy. Renewable technologies such as wind and solar, along with smart grids and the batteries required to store energy, will localize power and shift the energy sector from resource intensive to manufacturing intensive. These shifts, along with efforts to develop hydrogen as a viable energy source, will shift geopolitical power away from resource intensive states to newly developing energy hubs.
South Korea brings advantages in these areas and is taking steps to address its weaknesses in others. In the area of digitalization infrastructure, Seoul is committed to maintaining its edge in semiconductors and is investing in next generation 6G wireless. Samsung, while still a relatively small player in the network equipment market, is also one of the players best placed to expand its market share and is the preferred potential provider in Southeast Asia.
While South Korea has advantages in semiconductors and to a lesser extent in network equipment, data and artificial intelligence are areas led by the United States and other countries. However, Seoul understands the critical nature of data and AI to the future of its industries and has put in place policies to create an ecosystem for data, networking, and AI.
With U.S. and South Korean firms pushing to develop the metaverse, augmented and virtual reality in time may also be an area for mutually beneficial cooperation.
In the energy transition, South Korean firms are already critical partners for the United States in its effort to transition to electric vehicles. Eleven of the 13 large scale battery plants set to be built in the United States by 2025 will be built by South Korean firms. With China having kept South Korean battery makers largely out of its market as it developed domestic champions, South Korean firms have a strategic interest in partnering with the United States.
The Moon administration has also invested in developing hydrogen as an alternative fuel source.
Demographics will be a factor for South Korea. The working age population began declining in 2017, while the overall population began declining in 2020. South Korea already has the highest ratio of automation to workers, thanks in part to its large electronics sector. Efforts to automate more the economy will grow as the workforce continues to decline, alongside a shift toward utilizing AI.
Demographics will also impact national security. The Moon administration put in place plans to reduce the military from 620,000 troops to 500,000, but the continuing low birth rates mean South Korea’s conscription-based military will face additional reductions over the next two decades as the number of young male conscripts makes fielding a military of 500,000 unfeasible.
One solution to South Korea’s dwindling manpower issue is to lean more heavily on technology. The South Korean military is already exploring the use of AI powered drones and other equipment, but more broadly the demographic shift should encourage longer-range discussions within the alliance about what technologies the United States and South Korea will need to deploy to maintain deterrence and the future shape of the force structure on the Korean Peninsula.
Beyond addressing manpower shortages, AI is also likely to have additional implications for defense in the alliance such as the ethical use of autonomous weapons. Some of these issues are being discussed in the U.S. Defense Department’s AI Dialogue for Defense, which South Korea participates in, but due to North Korea’s own interest in cyber there may be unique alliance issues to consider.
Cooperation Should Move Beyond the Bilateral Framework
An initial scope for increased South Korea-U.S. cooperation on technology was laid out during last May’s Moon-Biden summit. The summit identified semiconductors, 5G and 6G, EV batteries, vaccines, and AI as areas for complementary investments or joint R&D.
Bilateral cooperation will remain important, but Washington and Seoul should endeavor to move beyond a bilateral framework for tech policy. By its very nature, technology is not bound by discrete national boundaries and the approach to policy should reflect that diversity.
In the case of 5G, for example the patents for the underlying technology are dispersed among the leading equipment producers in China, the United States, the EU, South Korea, and to a lesser extent Japan. An effort to develop 6G technology on a bilateral level between the U.S. and South Korea, or the U.S. and Japan as some have suggested, would leave out key players and likely be inefficient.
Under the Biden administration the United States has set up different forums for discussing tech policy with allies, including the U.S.-E.U. Trade and Technology Council and the Quad Critical and Emerging Technology Working Group. It is also preparing to announce its Indo-Pacific Economic Framework, which is expected to include issues such as the digital economy, technology, supply chains, and clean energy. While each of these groupings has the potential to play important roles in coordinating tech policy, and at times South Korea should interface with both, Seoul and Washington would be wise to take more of a functional approach to tech cooperation.
Regional cooperation will have a role in terms of coordinating policy in regional forums or the development of infrastructure, but in the area of tech policy the United States and South Korea should place more emphasis on building cooperation with the most relevant countries for a specific technology. As 5G demonstrates, technology isn’t bound by geography. The United States has shown flexibility in AUKUS in putting together what it viewed as the best partners; it should follow that model in tech policy as well.
How Can the U.S. and South Korea Cooperate More Closely on Technology?
In the four areas identified by the Biden administration in its initial supply chain review, South Korea may be one of the few allies able to contribute to three of the four areas of concern – semiconductors, large capacity batteries, and pharmaceuticals. It also shares the United States concern regarding the fourth, access to critical minerals and materials.
The first step is recognizing that securing U.S. supply chains means working collaboratively to secure South Korean supply chains. The United States’ efforts to transition to electric vehicles is largely dependent on the capacity of South Korean firms to produce the necessary batteries, but critical components of the supply chain needed to produce electric vehicle batteries are largely controlled by China.
As well as the regular consultations as envisioned at the Biden-Moon summit, productive cooperation would mean coordinating investments in the development of alternative suppliers for critical materials and components.
In the area of digital trade, cooperation on rules and infrastructure will be critical. South Korea has applied to join the Digital Economy Partnership Agreement (currently involving Chile, New Zealand, and Singapore) and the U.S. is considering how it will approach digital trade. Working together in a larger grouping to establish rules and norms for digital trade related to cross-border data, privacy, e-signatures and verification, as well as regulations related to the disclosure and liability of algorithms in AI should be key components of discussions on digital trade.
In terms of digital infrastructure, the United States and South Korea could collaborate in Southeast Asia on the deployment of Samsung 5G equipment to build out a more secure 5G network in the region.
The most interesting area of collaboration, however, on the digital front would be for the United States and South Korea to establish either a regional or global “data dam.” Domestically, South Korea has established a “data dam” to standardize data and make it available in a usable form for AI applications by small- and medium-sized enterprises. The idea would be to create a standardized data set with appropriate privacy protections that firms and countries who sign up to its standards could add to and access to spur innovation.
Another area for potential collaboration is the commercialization of hydrogen. The United States and South Korea should look to collaborate with countries such as Japan that are also looking to develop the technology, as well as with Chile and Australia who have the potential renewable capacity to make hydrogen projects viable.
Financing will be critical to these and other potential projects. The United States has already shown a willingness to finance 5G infrastructure through the Development Finance Corporation. Korea’s Economic Development Promotion Fund could be tapped for certain projects as well. The United States and South Korea could also look to tap into the Build Back Better World initiative, with partners, to expand clean infrastructure in Southeast Asia.
The Challenges of Tech Collaboration
Collaboration on tech policy will not always be easy. Many of these issues will touch on national economic issues that will not always align. The United States and South Korea, for example, both have an interest in maintaining a robust semiconductor industry, but South Korea will be reluctant to see its own industry hollowed out to rebuild the U.S. industry. Both sides will need to seek balance and complementarity.
Cooperation will also not necessarily mean that South Korea will side with the United States against China, as South Korean Trade Minister Yeo Han-koo recently noted. China-U.S. competition may be driving U.S. policy, but South Korea is unlikely to take steps directly aimed at China and that go counter to its national interests.
However, even when national interests do align, corporate interests may not. Despite the Biden administration’s desire to grow U.S. manufacturing, U.S. firms will follow their corporate interests. U.S. chip material maker Entegris, for example, has signaled that it will invest where its customers are, not merely in the United States. South Korean firms will often do the same.
Globalization, technological change, demographics, and national security may be bringing the United States and South Korea closer together, but there will be challenges in developing deeper cooperation.