South Korea scrambles to challenge Biden’s made-in-America EV policy

Kwon Oh-hwan, a Hyundai Motor worker and labor organizer for more than a decade, says his company has been “stabbed in the back” by recent legislation in the United States.

In May, Hyundai, South Korea’s biggest automaker, announced it would invest more than $10 billion in the U.S. by 2025, including for new electric vehicle and battery manufacturing. The company touted the investment as key to ensuring its future success, and as a reflection of South Korea’s burgeoning partnership with the U.S. This year, Hyundai and its affiliate brand Kia have climbed the sales ranks to become second only to Tesla in EV units sold in the U.S. 

So the South Korean auto industry was blindsided in August when the U.S. announced that the Inflation Reduction Act (IRA) would exclude Hyundai and Kia from the new $7,500 tax credits on electric vehicles. The credits are designed to be issued for EVs assembled in North America; because Hyundai and Kia assemble their vehicles in South Korea, they wouldn’t qualify. That would put them at a significant disadvantage in the U.S. market.

At a press conference by the Korean Confederation of Trade Unions, held in Seoul on Monday, a stony-faced Kwon and his colleagues expressed frustration over what they called “unilateral” legislation by the U.S., which imperiled South Korean workers. He ended by pleading with his country’s government to find a solution, saying South Korea “must not be pushed around by the Biden administration’s protectionist measures.”

South Korean President Yoon Suk-yeol Yoon is under pressure to score some relief for automakers, at a time when his country is beset by low growth, high inflation, and a sliding currency. On Wednesday, he was expected to hold a summit with U.S. President Joe Biden, with the inflation act and its effect on automakers high on the agenda. Instead, the two met very briefly on the sidelines of a fundraising event, Yonhap News reported. 

According to the report, Yoon’s office said that the South Korean president explained the industry’s concerns and hoped the U.S. would “co-operate closely” to resolve them. President Biden replied that the U.S. was “well aware,” and that the two countries should continue to hold “serious consultations.”

Yoon, a former prosecutor, took office in May, and his tenure has already been plagued by an appointment scandal, unpopular policy, and low approval ratings. Critics in the opposition and media have accused Yoon, who had no political experience prior to becoming president, of being ill-prepared for the nation’s top office and failing to clearly communicate a policy direction. 

He now faces the daunting task of convincing the Biden administration to back away from measures meant to protect U.S. manufacturing. When the IRA was passed in August, the White House issued an explainer describing Biden as “the most pro-worker, pro-union President in history,” since the legislation “promotes domestic sourcing and American jobs.”

Such a preference for domestic sourcing clashes directly with the U.S.-South Korea trade relationship. The U.S.-South Korea free trade agreement took effect in 2012, and last year, the two sides logged trade worth $194.5 billion, making South Korea the seventh-largest trading partner of the U.S., and the U.S. South Korea’s second-biggest partner, following China.

With so much at stake, the auto industry in South Korea appeared to be holding its breath while President Yoon and his delegation were in New York.

When asked about potential fallout from the IRA, Cha Seon-jin, a spokesperson for Hyundai Motor, would only tell Rest of World, “We are closely looking into the issue and analyzing the potential impact in our businesses.” 

Industry and government customarily have close, collaborative relations in South Korea, and the Korea Automobile Manufacturers Association issued a statement of support for the government: “Despite the unexpected passage of the law, our government has responded effectively by communicating our position to the U.S. government and sharing relevant information. Moving ahead, automakers will continue to work closely with the government to resolve difficulties.” 

Meanwhile, it’s called the value of the country’s most important alliance into question. “For Korean companies, there are now questions of whether they can really trust the U.S.,” Andrew Yeo, a senior fellow and the SK-Korea Foundation Chair in Korea Studies at the Brookings Institution’s Center for East Asia Policy Studies, told Rest of World. 

“Korean companies have invested so much in this, and now they feel like they’re being kind of boxed out. If Yoon doesn’t walk away with understanding or flexibility from the U.S., he will face a lot of difficult questions,” Yeo said.

South Korea relies on exports, which means that the fortunes of major exporters, like Hyundai and Samsung, are key to the economy’s overall fortunes. “Korea’s biggest conundrum is that its high-tech industries cannot thrive on their own. South Korea’s consumer market is too small and its population is declining,” Geoffrey Cain, author of Samsung Rising and a senior fellow for critical emerging technologies at the Lincoln Network, told Rest of World.

“Success has always rested on its ability to get favorable access to large, foreign markets like the U.S. and EU, and now this is becoming more urgent with the U.S.-China trade wars and large-scale changes in geopolitics,” Cain said.

With the IRA already on the books, Yoon faces an uphill battle in his talks with Biden, and could seek piecemeal measures such as partial exemptions for South Korean companies, said Suh Jeongmeen, an associate professor in the Department of Global Commerce at Soongsil University in Seoul, to Rest of World. 

In his comments on Monday, Kwon, the autoworker, accused Yoon’s administration of fixating on his foreign policy on the U.S. “like a sunflower” moves with the sun. He urged Yoon to diversify away from the U.S. and build up other trading relationships.

However, experts say that with the U.S. still being the world’s most important auto market, South Korean firms are left with little choice but to grit their teeth and make the best of the challenges presented by the IRA.

“It will be more profitable in the long term to maintain a steady market share in the U.S. EV market, rather than actively securing an alternative market,” Suh said. “So, the companies are likely to adopt a strategy that minimizes the impact of this measure and endures it as much as possible.”