South Korea's Tax Incentives for Local Chip and Battery Production May Draw US Backlash

Strategic Insights -

South Korean President Lee Jae-myung's pledge to grant tax incentives for local chip and battery production is part of the country's efforts to protect its firms amid growing global protectionism. However, the move may be seen as a "foreign trade barrier" by the United States, which could lead to complaints from Washington. The US has repeatedly criticized government measures or subsidies aimed at protecting local companies. Both countries are engaged in ongoing trade talks, with South Korea prioritizing the abolition of massive tariffs imposed by the US on imports of cars and steel products.

Key Takeaways:

  • President Lee Jae-myung's pledge to grant tax incentives for local chip and battery production may be seen as a "foreign trade barrier" by the US, which could lead to complaints from Washington.
  • The US has repeatedly criticized government measures or subsidies aimed at protecting local companies, citing them as a hindrance to fair trade activities.
  • South Korea's key industries, including manufacturing and electronics, are exposed to toughening competition from China.
  • The country's top priority in trade talks with the US is to abolish massive tariffs imposed on imports of cars and steel products.
  • The US is urging South Korea to ease its series of non-tariff barriers and increase imports of US products, particularly in energy.
  • Korea's pledge to help rev up sagging tech industries may be in vain if the US takes issue with the plan to gain an edge in the tariff negotiations.
  • The US National Trade Estimate (NTE) Report classifies any government measures that block international trade or US foreign direct investment as foreign trade barriers.
  • Import substitution subsidies, such as subsidies contingent on the purchase or use of domestic rather than imported goods, are considered a category of foreign trade barriers.

Statistics:

  • The US National Trade Estimate (NTE) Report identifies 14 categories of foreign trade barriers, including measures that restrict, prevent or impede international exchange of goods and services, US foreign direct investment, or US electronic commerce.
  • The NTE Report cited "subsidies contingent on the purchase or use of domestic rather than imported goods" as an example of import substitution subsidies.
  • South Korea is prioritizing the abolition of massive tariffs imposed by the US on imports of cars and steel products.

Sources:

  • "U.S. Trade Policy Agenda and 2020 Annual Report" [document]
  • "2025 U.S. National Trade Estimate (NTE) Report"
  • Choi June-sun, professor emeritus at Sungkyunkwan University Law School