US must engage its allies more closely on its economic policy

By Ahn Ho-young

Prof. Stephen Walt of Harvard University wrote in Foreign Affairs magazine one year after the Russian invasion of Ukraine, "As the world moves toward multipolarity, alliances will only matter more." I agree.

That in my view is the reason why more than 70 percent of Koreans support Joe Biden as U.S. President. We still remember Mr. Biden's pledge during the campaign that "the United States is back," which was interpreted as the reassurance of U.S. commitments to its allies.

That is also why the Yoon Suk Yeol government issued Korea's Indo-Pacific Strategy, declaring its intention to base Korea's foreign, security and economic policies firmly on the rule-based international order and to work more closely with the U.S.

Given all of this, we are perplexed in Korea by U.S. economic policies, which are seen to seriously undermine the economies of U.S. allies. Take the Infra Bill of 2021 as an example. The U.S. now says that it will implement the bill with strong domestic contents rule in accordance with the Buy American Act of 1933, practically nullifying meaningful market access for U.S. allies to export-related parts and materials to the U.S.

Take the CHIPS and Science Act as another. Early in March, the U.S. Department of Commerce issued requirements for those applying for subsidies under the CHIPS Act. The terms are so draconian, including the requirement to submit confidential business information, requirements that Korea's Minister for Trade, Industry and Energy termed "concerning." I understand and support the U.S.' intention to prevent the fracturing of the U.S.-led global semiconductor value chain and the important role that Korea should play as a U.S. ally. For that, the U.S. must treat an ally as an ally.

U.S. allies' concerns about the Inflation Reduction Act are already well-known. I am afraid that these policies will bring a series of serious negative impacts on the U.S., its allies and the overall international system.

First of all, some of them don't look like good economic policies. Construction companies in the U.S. were asked about the domestic contents rule for the Infra Bill. More than 90 percent of them answered that the rule will work as a serious bottleneck for the supply of necessary parts and materials, and will need a transition period for implementation. No wonder that the Washington Post wrote that the "Buy American" bid runs into manufacturing woes it aims to fix.

Second, it is the closest U.S. allies such as Korea, which suffers most from U.S. measures, both economically and politically. Apart from the economic woes already cited, it should be remembered that the companies which responded most positively to the U.S.' invitation to invest in the U.S. are now the ones that are to suffer most from U.S. measures. That is not fair.

At the same time, the U.S. measures make good fodder for naysayers in Korea to criticize the Yoon government's values-based diplomacy and efforts to further strengthen the alliance with the U.S. They can now more convincingly argue that Korea must hedge against the one-sided commitment and spread its eggs in the increasingly multi-polar world.

Third, the rule of law is an important component of the values the U.S. has promoted and maintained. It helped to maintain peace and prosperity in the world for the past 70 years. It has also worked as a source of legitimacy for the U.S. as a global power.

The above-cited laws and their implementation raise question as to how they relate to the most important principle of WTO laws, namely non-discrimination as reflected in the Most Favored Nation and the National Treatment clauses. I hear people asking if the U.S. commitment to the rule of law does not apply to WTO laws.

What should be done to remove these negative impacts? A lot of rethinking and legislative and executive actions will be necessary. For that, the U.S. must start by strengthening consultation with the allies. Chairman Bob Menendez recently released a U.S. Senate Foreign Relations Committee Majority staff report titled "The Imperative of Resourcing the Indo-Pacific Strategy."

In my view, the report contains an effective antidote to the above-cited negative impacts; (U.S. actions), combined with other "re-shoring" and "near shoring" efforts, may have a compelling strategic logic but have often been unsettling to U.S. allies and partners who have felt under-consulted."

In fact, U.S. officials now say that they understand the difficulties faced by U.S. allies and partners and are ready to consult with them. That is encouraging. I hope that they implement what they say.

The U.S. leadership has contributed to maintaining peace and prosperity in the world over the past 70 years, and worked as a source of the U.S.' own peace and prosperity. I do not think it's an option for the U.S. to abdicate from such a role. It's because, as Prof. Walt said, "As the world moves toward multipolarity, alliances will only matter more."

Ahn Ho-young (hyahn78@mofa.or.kr) is chair professor of North Korean studies, Kyungnam University. He also served as Korean ambassador to the U.S. and vice foreign minister.