🚨 Korea-US Manufacturing Alliance
Today Korean Economic News for Beginners | 2025.08.27
0️⃣ Shipbuilding·Nuclear·Energy $150B Investment, Domestic Supply Chain Hollowing-out Concerns
📌 "Record-breaking Scale" Cooperation Confirmed but Manufacturing Base May Weaken Due to Lack of Profit Return Systems
💬 At the Korea-US summit, the largest-scale cooperation in shipbuilding, nuclear power, and energy sectors was confirmed. Korean companies agreed to invest $150 billion (about 200 trillion won) in the US, and the government decided to import $100 billion worth of LNG long-term. Hyundai Heavy Industries and Korea Electric Power Corporation will serve as key partners in modernizing US shipyards and building new nuclear power plants, while Samsung and SK will greatly expand local production in semiconductors and batteries. However, concerns are raised that massive overseas investment could weaken the domestic manufacturing base and reduce high-quality jobs. Experts urged a careful approach, saying "concrete systems to bring profits back to Korea are more important than the investment itself."
1️⃣ Easy to Understand
Korea and the US have decided to cooperate in manufacturing on the largest scale in history. Korean companies will invest 200 trillion won in the US, while the US promises to open huge markets to Korea.
The key point of this cooperation is that "Korea will help rebuild America's broken manufacturing." Over the past decades, the US moved its manufacturing to China and other countries, which greatly weakened its domestic production base. Especially, the shipbuilding industry almost disappeared, and they lost much of the technology to build new nuclear power plants.
On the other hand, Korea has world-class technology in shipbuilding, nuclear power, and semiconductors. Hyundai Heavy Industries is the world's number one shipbuilder, Korea Electric Power has rich experience in nuclear plant construction, and Samsung and SK are global top-class in semiconductors and batteries.
Let's look at what specific cooperation will happen. Hyundai Heavy Industries will modernize old shipyards on the US East Coast with the latest equipment and build large warships and commercial vessels together. Korea Electric Power will be in charge of some of the 20 nuclear plants the US plans to build by 2030.
Samsung Electronics will expand its semiconductor factory already being built in Texas, and SK Hynix will also build additional memory factories. In the battery sector, LG Energy Solution and SK On will increase production bases across the US to prepare for the expanding electric vehicle market.
But there are problems too. If Korean companies build many factories in the US, domestic investment and jobs could decrease. For example, if Samsung makes semiconductors in the US, expansion of domestic factories will relatively decrease. Also, core technologies and talents may gradually move to the US.
In the past, when Japan made large-scale investments in the US from the 1980s, it eventually led to hollowing-out of manufacturing within Japan. In other words, companies made money overseas, but jobs and investment in Japan actually decreased.
Therefore, for this cooperation to succeed, the key is not just investing in the US, but how to bring those profits back to Korea and use them for domestic industrial development.
2️⃣ Economic Terms
📕 Manufacturing Hollowing-out
Manufacturing hollowing-out is when companies move production bases overseas, weakening the domestic manufacturing foundation.
- This was a typical problem Japan faced after expanding US investment in the 1980s-90s.
- While corporate profits may increase short-term, domestic jobs and technology accumulation decrease long-term.
- If there's no transition to high-value service industries, the entire economy can shrink.
📕 Profit Repatriation
Profit repatriation means bringing profits earned overseas back to the home country for reinvestment.
- The higher the repatriation rate, the more positive impact overseas investment has on the domestic economy.
- Policies that encourage repatriation through tax benefits or institutional support are important.
- It's more effective when repatriated as R&D and facility investment rather than simple dividends.
📕 Supply Chain Restructuring
Supply chain restructuring is the process of changing existing global production systems to focus on security and stability.
- Due to COVID-19 and US-China conflicts, safety is being prioritized over efficiency.
- "Friend-shoring" strategies are spreading, where core parts and materials are sourced from allied countries.
- Korea will play an important role in building new supply chains as a major US partner.
📕 Most Favored Nation Treatment
Most Favored Nation treatment is a WTO principle where the most favorable trade conditions given to one country are equally applied to other countries.
- However, exceptional favorable conditions can be given to security alliance countries.
- This serves as the basis for the US to give tariff benefits or ease regulations on Korean products.
- Korean companies are likely to receive preferential treatment compared to Chinese companies in this cooperation.
3️⃣ Principles and Economic Outlook
✅ US Manufacturing Revival Strategy and Korea's Role
Let's analyze why the US entered such large-scale cooperation with Korea, and what opportunities and risks this brings for Korea.
First, Korea was chosen as a key partner in America's manufacturing renaissance policy. The Trump administration wants to bring manufacturing back to America under "America First" policies. However, it's difficult to quickly restore technologies and workforce lost over decades, so help from reliable allies is needed. Especially in shipbuilding, Korean technology is essential to compete with China, and in nuclear power, Korea's experience and know-how are crucial to achieve new construction goals. This means Korea is recognized not as a simple subcontractor but as a strategic partner.
Second, Korea's geopolitical value is being highlighted in containing China and diversifying supply chains. The US wants to reduce dependence on China in key industries, but finding alternatives wasn't easy. Korea has excellent technology while being a democratic country sharing values with the US. The strategy is to diversify from depending only on Taiwan's TSMC in semiconductors to Samsung, and cooperate with Korean companies instead of Chinese companies in batteries. In this structure, Korean companies can receive a premium as "China alternatives."
Third, however, excessive dependence on the US could become a new risk factor. If Korean companies focus too much on the US market and US investment, they might miss business opportunities in other regions. There's also risk of major damage if US political situations change or trade policies are modified. We should learn from the case of Japanese companies that invested excessively in the US and lost competitiveness after the 1990s.
Being recognized as America's manufacturing partner is an opportunity for Korea, but without a balanced strategy, it could actually be harmful.
✅ Impact on Domestic Industries and Response Plans
Let's examine the specific impact large-scale overseas investment will have on the domestic economy and industries, and analyze how to respond.
First, while there will be short-term effects of increased exports and improved corporate performance, there are concerns about domestic investment contraction in the medium to long term. If Hyundai Heavy Industries wins US shipyard projects, sales and profits will increase immediately, but domestic shipyard investment might relatively decrease. Similarly, if Samsung and SK focus on building US factories, their capacity for new domestic investment becomes limited. Especially if R&D personnel and core technicians move to the US, domestic technological competitiveness could weaken. This could eventually lead to decreased domestic jobs and regional economic contraction.
Second, there could be "task hollowing-out" where high-value tasks go overseas while only simple tasks remain domestically. While the latest technology and large-scale investment are concentrated in the US, Korea risks being left with only relatively low-value parts production or back-office support tasks. For example, if semiconductor design and advanced processes are done in the US while only simple assembly or testing is done in Korea, technology gaps could widen. If this structure becomes fixed, Korea would be stuck in a "second-tier partner" position forever.
Third, therefore, a strategy combining overseas investment with domestic base strengthening is needed. The government should create policies that encourage companies to repatriate profits earned overseas into domestic R&D and new business investment. For example, tax benefits could be given to companies that reinvest overseas investment profits in domestic R&D, or domestic cluster development projects linked to overseas expansion could be promoted. Also, systems for "technology reverse-flow" should be built to prevent core technology outflow while transferring advanced technologies acquired overseas back to Korea.
For successful overseas investment, the key is creating a virtuous cycle that prevents domestic base weakening while actually enhancing domestic competitiveness.
✅ Long-term Outlook and Success Conditions
Let's comprehensively examine what conditions need to be met for this Korea-US manufacturing cooperation to truly benefit Korea.
First, Korea must position itself as a technology innovation hub beyond simply being a production base. Korean companies shouldn't just make products in the US, but should collaborate with local research institutions to develop next-generation technologies and bring them back to Korea. For example, Samsung could use technologies gained from developing AI chips in Texas to improve the competitiveness of Korea's entire semiconductor industry, or Hyundai Heavy Industries could develop eco-friendly ship technology in the US and share it with domestic shipbuilders. This way, overseas investment wouldn't weaken domestic industries but actually strengthen them.
Second, a strategy for Korea to play a "hub" role in global supply chains is important. Rather than just targeting the US market, Korea should be used as a base to expand into other regions like Asia and Europe. For example, nuclear technology developed in Korea could be exported not only to the US but also to the Middle East and Eastern Europe, or Korean battery technology could be supplied to US, European, and Chinese markets through a global strategy. This would reduce dependence on specific markets while achieving economies of scale.
Third, systematic support and management systems should be established at the government level. Rather than individual companies investing on their own, comprehensive strategies should be developed and coordinated from a national industrial competitiveness perspective. When approving overseas investment, domestic employment and investment plans could be required to be submitted together, or a certain percentage of overseas profits could be mandated to be reinvested in domestic R&D. Also important is a "shared growth" system where companies expanding overseas share information and technology gained locally with domestic small and medium enterprises.
Ultimately, the success of this cooperation depends on how strategically it's approached from a long-term national competitiveness perspective rather than short-term profits.
4️⃣ In Conclusion
The Korea-US manufacturing cooperation is both an opportunity and a test for Korea. The $150 billion investment is certainly a great achievement, but whether this leads to domestic industrial development depends on future strategies.
The most concerning point is the potential repeat of Japan's "manufacturing hollowing-out" phenomenon. Japanese companies made large-scale investments in the US from the 1980s, but this eventually weakened Japan's domestic manufacturing base and became one of the causes of long-term stagnation. To avoid repeating the same mistake, Korea must pursue overseas investment and domestic base strengthening simultaneously.
The key is a "profit repatriation" system. Companies should be encouraged to reinvest profits earned in the US not just as dividends but into domestic R&D and new technology investment. Also important is the "technology diffusion" effect of sharing advanced technologies and management know-how acquired overseas with domestic small and medium enterprises.
From America's perspective, Korea is an indispensable partner in containing China and diversifying supply chains. By utilizing this strategic value well, Korea can cooperate as an equal partner rather than a simple subcontractor. However, excessive dependence on the US could become a new risk factor, so balanced cooperation with Europe, Asia, and other regions should also be pursued.
The government's role is also important. Rather than just considering individual companies' short-term interests, systematic support and management should be provided from a national long-term competitiveness perspective. Systems are needed to review domestic ripple effects when approving overseas investment and continuously monitor performance.
Most importantly, this opportunity should be made into a turning point for Korea to leap forward as a "global manufacturing hub." Beyond simply targeting the US market, Korea should serve as a platform for expanding worldwide.
Ultimately, the real success of this Korea-US cooperation will be evaluated not by the investment scale shown in numbers, but by how much stronger Korea's manufacturing competitiveness becomes in 5-10 years. Now is the crucial time to determine that future.
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