Shortly after President Biden signed his signature climate bill into law last year, diplomats from South Korea and Japan boarded planes to the United States to let their American counterparts know they were not happy.
By restricting electric vehicle tax credits to cars assembled in North America, the officials warned, the United States was hurting key allies in its push to sideline China and boost the U.S. manufacturing sector. The Biden administration has spent much of the last year attempting to address those and other concerns, and a trilateral summit Friday will present the latest test of Biden’s ability to balance his own economy-focused reelection pitch with the complexities of international diplomacy.
Even as national security is likely to dominate the agenda for the Camp David summit, economic issues have emerged as a key area of potential promise and peril for the president. As he meets with South Korean President Yoon Suk Yeol and Japanese Prime Minister Fumio Kishida, Biden faces the challenge of convincing them that his economic policies — many of which are designed to counter China’s growing influence in the global economy as well as boost his 2024 campaign — are also in the shared interests of Seoul and Tokyo.
“We are shifting increasingly into an environment where economic security is national security,” said Emily Benson, director of project on trade and technology at the Center for Strategic and International Studies. “So I do anticipate that economic-security issues will feature quite prominently in the trilateral.”
A range of U.S. policies enacted a year ago — including tax credits for American-built electric vehicles, export controls targeting China and subsidies for U.S.-based semiconductor plants — have become critical tension points in the trilateral relationship. Washington has stepped up its efforts on economic security in part to limit China’s fast-growing ambitions to dominate the market for key technologies that power the world’s supercomputers, artificial intelligence, military assets and everyday products like cars. Japan and South Korea, the world’s third-largest economy and the top producer of memory chips, respectively, have become pivotal if at times reluctant partners in Biden’s bid to box in Beijing.
The escalating U.S.-China economic conflict has not been without cost for South Korea and Japan, whose companies rely heavily on Chinese workers and consumers. As the Biden administration seeks to rally allies in its effort to enforce new restrictions on China, its overtures to Yoon and Kishida have shown how national and economic security policies are “all intertwined,” said Chad P. Bown, a trade expert at the Peterson Institute for International Economics.
“It’s not only the subsidies that are in the Inflation Reduction Act for electrical vehicles or the Chips Act for semiconductors, but also export controls,” he said. “All of that is also for national security purposes. … All of these policies are interrelated.”
Experts do not expect many major announcements on economic issues during the summit, but one of the deliverables administration officials have outlined involves the development of a supply chain “early warning” coordination system in which the countries will share information about disruptions to help head off shortages like those seen during the coronavirus pandemic.
Biden is hosting the Japanese and South Korean leaders at Camp David in part to celebrate the recent détente between the two Asian nations after decades of acrimony. The trilateral is slated to be heavy on symbolism noting the three allies’ growing sense of unity and shared purpose, much of which is a direct result of challenges posed by common adversaries like China and North Korea.
But the sense of bonhomie, particularly evident on issues of national security, has faced more turbulence on the economic front as Biden has pursued “Made in America” policies that his political allies see as key to his reelection even as they have sometimes caused global allies to grumble. The president, whose embrace of “Bidenomics” has ramped up in recent weeks as his administration has touted growth in U.S. manufacturing jobs and new American-based factories, has faced calls from allies to consider the collateral damage his agenda may be causing for global partners.
White House officials point to regulatory adjustments the Biden administration has made to address complaints from allies, including South Korea and Japan.
“We have been attentive to some concerns and, where we can, we seek to allay them,” said one senior administration official, speaking on the condition of anonymity to preview the summit.
Biden said last year he would consider “tweaks” to his signature climate law after allies in Asia and Europe publicly criticized a provision limiting tax credits for electric vehicles assembled outside North America. Over the past nine months, the administration has released new regulatory guidance and inked a limited trade deal with Japan, opening up more tax credits for carmakers in Japan, South Korea and Europe. The moves were especially critical for South Korean firms like Hyundai, who feared their cars would not be eligible for lucrative tax credits under the original law.
A regulation released by the Treasury Department in December clarified that electric cars assembled outside North America could still qualify for the $7,500 consumer tax credits if they were leased rather than purchased. In response, South Korea carmakers immediately increased the number of electric vehicles available for lease in the United States, Bown wrote last month in a working paper.
While tensions over the tax credits have calmed since the new regulations went into effect earlier this year, the Biden administration is also hoping to use the trilateral summit to rally Japan and South Korea around its broader plans to shore up supply chains for critical technologies and counter China’s growing influence in the semiconductor industry. As Biden has pursued export controls and other measures against Beijing, many Japanese and South Korean companies who do business with China have found themselves caught in the crossfire.
While Japan has followed the United States’ lead in enacting export controls that restrict China’s ability to produce or acquire advanced chips, South Korean chipmakers received a one-year waiver allowing companies like Samsung and SK Hynix to continue producing chips in China. Those companies have invested billions of dollars in Chinese plants and could lose significant portions of their sales if Biden’s export controls force them to pull out of China. The Biden administration’s one-year waiver is set to expire in October, though experts expect it to be extended.
The White House points to investments in new U.S.-based manufacturing plants by Japanese and South Korean firms as evidence that Biden’s approach is working. Samsung, for example, announced plans last year to invest $192 billion in the United States over the next 20 years, with new semiconductor production lines in Texas.
Biden often touts such projects as a sign that his domestic policies are working. On Tuesday, he cited a planned multibillion-dollar investment by SK Hynix during a speech on the economy in Milwaukee, noting that the thousands of new jobs at the plant will pay six figures without requiring a college degree.
“Folks, instead of exporting American jobs, we’re creating American jobs and exporting American products,” Biden said in a speech marking the anniversary of the Inflation Reduction Act. “And they’re being built right here in Wisconsin and places where factories had been shut down. ”
But part of Biden’s challenge during Friday’s summit will be to convince his top allies in Asia that his push to bolster the U.S. economy — and his reelection chances — will not come at their expense.
“If the pursuit of economic security will weaken the Japanese economy, I don’t think that is a happy case for us,” said Ken Jimbo, a defense expert at Keio University in Tokyo. “I hope that the United States will accumulate the understanding that every country has a different supply chain, and that they have to be respected in a way that we cannot always be on board with the restrictions that the United States wishes to have.”
Another challenge Biden faces will be convincing leaders that any agreements made at Camp David will last. With the 2024 election looming, some foreign diplomats have grown accustomed to sharp shifts in policies after U.S. presidential transitions. In Japan, there is lingering displeasure that the United States formally abandoned the Obama administration’s Trans-Pacific Partnership regional trade deal after Donald Trump was elected in 2016. Trump’s presidency also included sudden policy changes with the imposition of tariffs on imports of steel, aluminum, washing machines and solar panels, as well as the constant threat of a 25 percent levy on automobile imports.
While Biden’s presidency has been less turbulent on the trade front, some global allies have likened his “Made in America” policies to Trump’s “America First” approach. Biden administration officials have shown little appetite for the kinds of sprawling free-trade agreements of the past, which some Democrats believe have cost the party votes in key Rust Belt states where jobs were shipped overseas. Instead, the Biden administration has focused on building out the Indo-Pacific Economic Framework, a multilateral trade initiative in the region.
As Biden has pushed for incentives to spur the U.S. manufacturing industry, other countries have put in place their own subsidies to shore up their domestic markets. South Korea and Japan, for example, have implemented policies to support domestic chipmakers and electric vehicle manufacturers in the past year.
The trilateral meeting at Camp David could offer the three leaders an opportunity to align their strategies and address any “additional hiccups” that could arise as they balance economic and national security, Bown said.
“This is part of why we have these relationships,” he said. “And why it’s important that the leaders actually get together so that if something does happen, at the highest political levels they can then tell their administrations to figure out a compromise.”