Strategies for South Korea-China Economic Cooperation 

in the U.S.-China Rivalry Era

Choo Jae-woo

Kyung Hee University

The 21st century is often seen as an era defined by U.S.-China competition, marked by significant global economic and political shifts. Conflicts between these powers—across trade, technology, and security—have had a profound impact on South Korea's economy. South Korea faces the dual challenge of maintaining strong political ties with the U.S. while fostering robust economic relations with China, making its economic leverage with China increasingly vital.

South Korea ranks as one of China’s top trading partners, particularly excelling in critical industries like semiconductors, displays, and petrochemicals. The semiconductor sector plays a pivotal role in supporting China’s advanced manufacturing and IT industries, as South Korea dominates the supply chain for essential components. Similarly, in the display sector, South Korean companies lead in OLED and LCD technologies, supplying high-quality panels crucial for the production of smartphones, TVs, and other consumer goods in China.

South Korea plays a critical role in the petrochemical industry, supplying high-value plastics and chemical materials essential to China’s manufacturing sector. This positions South Korea as a major contributor to China’s technological and industrial progress. Furthermore, the enduring popularity of Hallyu (the Korean Wave) and K-brands enhances South Korea’s influence in the Chinese market, promoting cultural exchanges and strengthening ties in the service industry. Together, these elements create a strong foundation for sustaining economic cooperation with China in this competitive era, paving the way for strategic collaboration that maximizes mutual benefits.

The Impact of U.S.-China Competition on South Korea-China Economic Cooperation

Since the "America First" agenda of the Trump administration, the U.S. has intensified its economic rivalry with China, employing measures such as tariffs, technological restrictions, and supply chain reorganization. This dynamic has disrupted South Korea-China economic relations. In response, China has adopted a “dual circulation” strategy to prioritize self-sufficiency and domestic consumption, raising concerns about reduced demand for South Korean goods. Concurrently, South Korea faces U.S. pressures to comply with technology export restrictions and align with supply chain adjustments.

The ongoing shifts in global trade and investment have presented significant challenges in relations with China. Since 2022, the trade balance has consistently been in deficit, with a 15-month streak of trade deficits lasting through December 2023. Over this period, the total trade deficit with China reached approximately $47 billion, underscoring the pressing need for structural economic adjustments. Key factors contributing to this trend include a $9.2 billion drop in the semiconductor export surplus and a sharp rise in imports of electric vehicle-related products. Additionally, China’s "dual circulation" policy, aimed at bolstering its domestic economy and achieving technological self-sufficiency, has played a notable role.

Investment trends have also declined. In 2023, new investments in China dropped by 78.1% year-on-year to $1.867 billion, reaching early-2000s levels. Semiconductor investments saw the steepest decline, falling by 99.8% to $11 million. China’s share of overseas investments decreased to 2.9%, as funds shifted toward markets like the U.S. and Vietnam. This trend stems from U.S. technology sanctions, the Inflation Reduction Act (IRA), and a less favorable investment climate in China due to rising labor costs and reduced incentives.

Despite these challenges, leveraging economic strengths is essential to maintain cooperation with China. Expanding collaboration in emerging sectors such as semiconductors, batteries, and renewable energy is critical, along with exploring opportunities in eco-friendly technologies and cultural content.

The intensifying U.S.-China competition has placed businesses in a challenging position. The United States is ramping up supply chain restructuring and imposing stricter controls on technology exports, while China is focusing on creating its own economic bloc and advancing its technological self-reliance. This growing divide directly impacts companies, particularly those in key industries such as semiconductors, batteries, and artificial intelligence. Strengthening ties with the U.S. may require limiting technology exports to China, while heavy reliance on the Chinese market poses risks such as declining revenues.

Nevertheless, economic cooperation with China remains essential.

Even amid U.S.-China tensions, China continues to be the largest trading partner, accounting for about 25% of exports in 2023. This reflects the critical role China’s domestic market and manufacturing base play in the broader economy. Maintaining economic ties with China is vital for maximizing mutual benefits and sustaining growth.

With U.S.-China competition intensifying, there is a clear need to identify new opportunities for economic and industrial collaboration with China. Strengthening partnerships in advanced technologies such as semiconductors, batteries, and renewable energy could yield significant benefits. For instance, joint efforts in carbon-neutral technologies could lead to mutually complementary outcomes. R&D collaborations should be prioritized to drive innovation and enhance global competitiveness. Additionally, advanced technology expertise can be leveraged to provide critical components for China’s manufacturing, fostering deeper interdependence.

The green technology and energy sectors also present substantial opportunities. Climate change is a shared priority, offering potential for collaboration in areas like renewable energy, electric vehicle batteries, and hydrogen energy. For example, advanced technologies and equipment could support China’s large-scale solar and wind projects, while China could ensure a stable supply of rare earth elements and other vital resources.

Cultural and service industries offer further avenues for strengthening ties. Beyond manufacturing, expanding cooperation in areas like digital content, gaming, and tourism could prove highly beneficial, especially given the continued popularity of cultural content. Moreover, tapping into China’s e-commerce platforms to promote local brands can drive growth and foster stronger cultural connections.

Finally, activating channels for economic diplomacy is crucial to sustaining cooperation amid global tensions. Regular economic and industrial forums should be established to enable governments and businesses to foster mutual understanding and identify collaborative opportunities. These platforms can serve as a foundation for long-term cooperation and shared progress.

Exit Strategy for Economic Cooperation Between South Korea and China

The era of U.S.-China competition presents both challenges and opportunities. Balancing relations with these two global powers is critical, requiring strategic diplomatic and economic approaches. Cooperation with China is particularly vital for long-term growth, with key opportunities in advanced technologies, supply chains, green industries, and service sectors. Strengthening collaboration in these areas, particularly through R&D and technological exchanges, could pave the way for sustainable development.

By providing renewable energy technologies to China while ensuring stable access to rare earth resources, competitiveness in global supply chains can be enhanced. Further, leveraging cultural content and digital innovations in partnership with Chinese e-commerce platforms can expand the service sector and foster deeper cultural understanding. Such strategic initiatives will enable effective navigation of U.S.-China competition while reinforcing a strong position in the global economy.