South Korea, a formidable industrial nation, made a significant strategic move just a few years ago, placing a substantial bet on the United States. Its goal was to bolster America’s competitive standing in emerging energy technologies, thereby lessening U.S. reliance on its primary global competitor, China.
Today, however, South Korea finds itself adrift in a sea of economic and political uncertainty.
America’s energy direction has shifted dramatically. Korean exports to the U.S. are now burdened by 15 percent Trump tariffs, imposed as part of a recent trade agreement. Compounding this, workers have been deported from a major $5.5 billion Korean auto plant in Georgia. In a bid to appease the White House, South Korea’s president has committed to purchasing more American natural gas than the nation realistically requires, and a prominent Korean shipbuilder has pledged to construct a U.S.-flagged vessel for transoceanic gas transport.
Yet, these concessions may still fall short.
All eyes in Korea are on a pivotal summit taking place this week, hosted by their own country, where President Trump is scheduled to convene with China’s President Xi Jinping. Should the U.S. and China finalize a trade agreement, as both Washington and Beijing have hinted, South Korea risks losing its crucial competitive advantage as a non-Chinese alternative in the global market.
“They fully committed,” remarked Henry Haggard, a former U.S. diplomat in Seoul, highlighting Korea’s strategy of extensive investment in the American market. “The primary concern is the potential for a U.S.-China deal that puts Korea at a disadvantage.”
This situation underscores the complex challenges faced by numerous nations caught in the intense energy and trade rivalry between the world’s two leading superpowers. The United States is strongly advocating for increased fossil fuel consumption, while China is aggressively advancing the renewable energy technologies it dominates.
Like many countries globally, South Korea seeks to balance both objectives.
As key trading partners, both the United States and China are vital to Korea. It relies on China for essential raw materials, such as graphite for battery anodes and photovoltaic cells for solar panels, and depends on Chinese consumers to purchase its manufactured electronics.
However, South Korea also requires the military shield of the United States against the nuclear ambitions of its northern neighbor, Kim Jong-un. Furthermore, the American market is indispensable. Korea has strategically positioned itself as a dependable alternative supplier of clean energy technologies for those seeking to diversify away from China. Its primary selling point, therefore, is precisely its distinct identity from China.
The Ascendance of Natural Gas in South Korea
Incheon, a city on Korea’s northwestern coast, is historically significant as the site of General Douglas MacArthur’s pivotal 1950 assault that shifted the tide of the Korean War in favor of the South.
Today, Incheon hosts the world’s largest terminal for importing Liquefied Natural Gas (L.N.G.), making it a critical component of the Trump administration’s engagement with Seoul.
South Korea commenced importing American L.N.G. in 2017, coinciding with Mr. Trump’s initial presidency and the burgeoning U.S. fracking industry. While gas imports initially rose, they have since stabilized and are anticipated to decrease over the next decade as South Korea transitions towards renewable energy sources like wind power.
Currently, approximately ten percent of South Korea’s L.N.G. originates from the United States, transported by tankers from export terminals on the Gulf Coast of Texas and Louisiana, which received financial backing from Korean banks. The remaining supply is sourced from various gas providers, including those in the Middle East.
Under direct pressure from President Trump in July, South Korean President Lee Jae Myung committed to a staggering $100 billion purchase of American L.N.G., spread over an undisclosed timeframe.
The wisdom and feasibility of this commitment remain questionable. With South Korea’s projected decline in gas demand due to an increase in renewables, securing multi-year deals with U.S. exporters at currently high gas prices could result in significant financial burdens.
Furthermore, an excessive dependence on a single supplier presents considerable risks. “Diversifying supply sources is important,” noted Taesik Kim, a research fellow at the Korea Energy Economics Institute in Ulsan, emphasizing that international relations can, as recent history demonstrates, shift dramatically.
While gas accounts for a fifth of South Korea’s energy composition, the government is actively working to decrease fossil fuel consumption and increase renewable energy to lower greenhouse gas emissions. The Trump administration’s insistence on higher gas purchases directly conflicts with these environmental objectives.
For the present, South Korea, alongside many other nations, is attempting to placate a unpredictable Trump administration.
Korean businesses critically need American consumers, as their domestic market is insufficient. “It’s about viewing the American market and the American continent as the frontier for future commercial endeavors,” explained Mr. Haggard, the former U.S. diplomat.
A Risky Bet on U.S. Clean Energy
South Korea had strategically gambled on a burgeoning American demand for clean energy to fuel its future business growth.
This wasn’t to say Korea could rival China, which currently holds an unparalleled competitive edge in renewable energy technology. China manufactures the world’s most economical electric vehicles and solar panels, and it controls the crucial processing of battery minerals.
Instead, Korea’s vision involved assisting the United States in advancing its clean energy sector. Korean firms possessed expertise in manufacturing electric cars, their essential batteries, and the necessary charging infrastructure. Through substantial investments in U.S. factories, these companies aimed to train and employ millions of American workers.
Billions of dollars flowed from Seoul into these American ventures.
Hyundai established a $5.5 billion electric vehicle manufacturing facility near Savannah, Georgia, as part of its broader $26 billion investment strategy for the U.S. Similarly, CS Wind, another Korean firm, acquired a factory in Colorado dedicated to producing wind towers.
LG Energy Solutions inaugurated seven battery production facilities across the United States. Meanwhile, competitor SK On forged a partnership with Ford to supply batteries for its emerging electric vehicle range. One of SK On’s subsidiaries also commenced operations at a charging station factory in Plano, Texas. Samsung announced intentions to invest $55 billion in American battery and semiconductor chip manufacturing.
The Biden administration’s policies, particularly the Inflation Reduction Act, significantly spurred these investments by offering attractive incentives for establishing clean energy manufacturing facilities.
However, the landscape shifted dramatically with the election of Mr. Trump. He promptly dismantled many of the renewable energy incentives introduced by the Biden administration. The American automotive sector subsequently decelerated its electric vehicle initiatives, delivering a shock to Korean companies that had based their U.S. investments on an anticipated transition away from internal combustion engines.
Despite these setbacks, there was a silver lining for Korea: the Trump administration imposed increased tariffs on Chinese imports.
For major Korean corporations, this meant their investments weren’t entirely in vain. Elevated tariffs on Chinese batteries directly benefited Korean battery manufacturers, especially those operating within the U.S. Even with a slowdown in U.S. electric vehicle adoption, Korean battery producers could adapt by focusing on energy storage solutions, a critical need for data centers.
Now, however, a fresh wave of uncertainty looms with the prospect of a U.S.-China trade deal, potentially unveiled this week at the Asia-Pacific Economic Cooperation summit.
Questions abound: Will this new agreement ease conditions for Korean battery manufacturers still dependent on China for raw materials such as graphite? This would offer much-needed relief. Alternatively, will it permit Chinese companies to export batteries from other locations to the U.S. or even establish manufacturing plants within America? Such a scenario would severely disadvantage Korea. Andrew Yeo, a Brookings Institution specialist on Korea, aptly described a U.S.-China deal as a “double-edged sword.”
The specifics remain undisclosed, with current indications suggesting only a potential U.S. pause on certain Chinese tariffs and a reciprocal Chinese halt on proposed rare earth mineral restrictions. The exact nature and long-term stability of any deal between Trump and Xi remain entirely speculative.
“They are eager to understand the new rules of engagement,” stated Tim Bush, a battery industry analyst at UBS Securities.
Grace Moon contributed reporting from Seoul.