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1. COVID-19, Supply Chains, and Dependence on China: The Indian Perspective

Author:
Amitendu Palit
Publication Date:
07-2021
Content Type:
Journal Article
Journal:
Joint U.S.-Korea Academic Studies
Institution:
Korea Economic Institute of America (KEI)
Abstract:
China is India’s largest source of imports, nearly 15 percent of which are sourced from China. Many of India’s major imports—electrical machinery, electronic and semiconductor devices, fertilizers, antibiotics, iron and steel products, and vehicular parts—are extensively sourced from China. The outbreak of the COVID-19 pandemic highlighted the critical dependence of India’s pharmaceutical industry on China for active pharmaceutical ingredients (APIs). The dependence on China for both intermediate and finished products, has encouraged India to incentivize greater production at home through production-linked-incentives (PLIs) and to work with Japan and Australia on reorganizing regional supply chains. The paper examines the repositioning of supply chains in the strategic industry of pharmaceuticals. Efforts to reduce dependence on China assume great importance in this regard as India strives to become the leading supplier of affordable vaccines for tackling COVID-19.) The decade of the 2020’s has begun with India embarking on the dedicated mission of reducing import dependence and increasing self-reliance. The COVID-19 pandemic has starkly exposed the frailties of supply chains relying heavily on China. For India, which relies extensively on China for several critical imports, no sector is more vulnerable to disruptions from over-dependence than its pharmaceuticals. India’s reputation as the “pharmacy of the world” drawn from its great proficiency in making affordable pharmaceutical formulations and vaccines, relies fundamentally on sourcing essential drug intermediates from China. As one of the leading actors in the world’s fight against COVID-19, India is wary of sourcing disruptions from China affecting its ability to contribute to expanding global health security. After focusing on the import dependence of India’s pharmaceutical industry on China, this paper analyzes the recent initiatives announced by India for increasing economic self-reliance and reducing such dependence. It concludes by reflecting on the prospects of India decoupling from China in sourcing pharmaceutical ingredients.
Topic:
Economics, COVID-19, Imports, and Supply Chains
Political Geography:
China, South Asia, India, and Asia

2. Taiwan’s Shifting Role in the Global Supply Chain in the U.S.- China Trade War

Author:
Jinji Chen, Hong-yu Lin, and Yi-ting Lien
Publication Date:
07-2021
Content Type:
Journal Article
Journal:
Joint U.S.-Korea Academic Studies
Institution:
Korea Economic Institute of America (KEI)
Abstract:
The U.S.-China trade war and the pandemic have had a profound impact on cross-border supply chains. In the past few years of U.S.-China tensions, China has been accused of engaging in unfair competition by abusing its national power, from trade and technology to COVID-19 responses. Amid such accusations, some countries have been stepping back from cooperating with China due to national security concerns. As the lockdowns have further disrupted value chains and highlighted the vulnerability of global supply chains, enhancing supply chain resilience has now become a national imperative for the U.S., Japan, and other countries, with an emphasis on strengthening their production capabilities in the semiconductor and medical care industries.
Topic:
Economics, National Security, Trade Wars, and Supply Chains
Political Geography:
China, Taiwan, Asia, North America, and United States of America

3. The Pandemic’s Impact on Supply Chains from China and their Evolution: The View from South Korea

Author:
Jin Kyo Suh
Publication Date:
07-2021
Content Type:
Journal Article
Journal:
Joint U.S.-Korea Academic Studies
Institution:
Korea Economic Institute of America (KEI)
Abstract:
Today’s global economy is highly interconnected and interdependent. Supply chains across the world are finely tuned to deliver parts just when they are needed, so that companies and industries do not need to waste money on maintaining big warehouses. The economic system runs with remarkable efficiency, and companies are able to keep inventory to a minimum. However, firms have started rethinking their supply chains in response to changing labor costs, advances in automation, rising protectionism, and external shocks, such as natural disasters. In particular, the COVID-19 pandemic has revealed the structural fragility of current global supply chains and has forced many global enterprises to fundamentally reconsider their approach to global manufacturing and sourcing. The crisis has also highlighted geopolitical tensions, trade restrictions, and nationalist politics aimed at promoting a country’s domestic industries, which are likely to continue reshaping the global business landscape. As a consequence, most global enterprises are going to be under greater political and competitive pressure to increase their domestic production, grow employment in their home countries, and rethink their use of lean manufacturing strategies that involve minimizing the amount of inventory held in their global supply chains. Previously, supply chains were designed to keep costs low and inventories lean. However, supply chains are now being reworked to reduce the risks of future disruption even if doing so means incurring additional costs. Because China is decidedly the world’s largest goods exporter and is also currently mired in a trade conflict with the United States, supply chains going through China may be among the most vulnerable to future disruptions. Hyundai, South Korea’s largest automaker, temporarily stopped production lines at its factories in South Korea because of shortages of Chinese parts. The Hyundai shutdown—encompassing the first factory lines to be idled outside China—could foreshadow considerably more serious disruptions in the complex networks that supply automakers with essential components and materials (Automakers are especially susceptible to interruptions in the flow of goods because the industry is global, and cars are complex products with a myriad of precision parts). Recognizing the risk that dependency on China poses to national industries, some governments have offered manufacturers incentives to exit China and ease the pain of diversification. For example, Japan put $2.2 billion of its COVID-19 economic stimulus package into supporting its manufacturers moving toward shifting production outside of China. There was also mounting public pressure in some countries, such as the United States, to move essential production of pharmaceuticals and medical equipment out of China and closer to home. It is, however, not that simple to reduce global supply chain reliance on China: the nation still retains not only considerable comparative advantages in many areas (e.g. electronics, machinery, and equipment manufacturing), but also enormous purchasing power as the world’s second largest market. Even those companies that have diversified production are finding it hard to break free of China’s pervasive influence. Anticipating a rise in tariffs due to the U.S.-China trade conflict, videogame producer Nintendo shifted the manufacturing of its blockbuster gaming console called Switch to Vietnam in 2019. There was, however, a shortage of Switch consoles in stores in early 2020 due to a lack of essential components flowing to the company’s Vietnamese factories, as COVID-19 paused production of component parts by Chinese suppliers. In addition, most businesses have developed complex interdependencies, resulting in a deep tiering of supply chains. Many manufacturers depend on first-tier suppliers which, in turn, rely on a second-tier, and so on. Therefore, relocating factories or replacing all Chinese suppliers would be infeasible in the short-term. This chapter reviews the impact of supply chain disruption caused by COVID-19 on the South Korean economy and examines the future of regional supply chains centered on China. The rest of the paper is structured as follows. How supply chain disruption caused by COVID-19 will affect the South Korean economy, including trade, is discussed in Section 2. According to the latest national GDP report by the Bank of Korea (BOK), South Korea is going to see a mere 1 percent GDP contraction for 2020, the second-best performance among major economies behind only China. Reasons for why the South Korean economy was not seriously affected by the pandemic are also discussed in Section 2. Section 3 highlights the difficulty of reducing global supply chain reliance on China. China is likely to remain a key player, and the world must look at the reality that global supply chains are highly interconnected with China and that disconnecting from China’s supply chain is not an easy economic task for many multinational companies. The final section offers a few concluding remarks on deepening regionalism specifically in Asia, including policy implications for South Korea.
Topic:
Economics, COVID-19, and Supply Chains
Political Geography:
China, Asia, and South Korea

4. The Future of U.S. Supply Chains: National Security and the Pandemic

Author:
Troy Stangarone
Publication Date:
07-2021
Content Type:
Journal Article
Journal:
Joint U.S.-Korea Academic Studies
Institution:
Korea Economic Institute of America (KEI)
Abstract:
The COVID-19 pandemic has been the most significant economic disruption to the international economy since the Great Depression. The IMF estimates that the global economy contracted by 3.5 percent last year, while the WTO has projected a 5.3 percent decline in global trade. The economic impact on the United States has been significant as well. Early in the pandemic the United States experienced shortages of critical medical supplies and products, while the need to social distance has continued to place restrictions on the overall economy. For 2020, the pandemic saw GDP decline by 2.3 percent, while exports fell by 12.9 percent and imports by 6.4 percent. All of this has resulted an increased focus on supply chains and their vulnerabilities.
Topic:
Economics, National Security, COVID-19, and Supply Chains
Political Geography:
China, Asia, North America, and United States of America

5. The Big Squeeze: Japanese Supply Chains and Great Power Competition

Author:
Mireya Solis
Publication Date:
07-2021
Content Type:
Journal Article
Journal:
Joint U.S.-Korea Academic Studies
Institution:
Korea Economic Institute of America (KEI)
Abstract:
Japan led, and was transformed, by the global supply chain revolution. Facing growing protectionism in industrialized markets and reeling from sharp yen appreciation in the aftermath of the 1985 Plaza Accord, Japanese firms responded with a drastic increase in their overseas investment activities. In so doing, many of these companies spearheaded the movement towards the fragmentation of production across national boundaries that sought efficiency gains by pooling the competitive advantages of different locations. Japan’s experience with the first supply chain revolution was transformative. It altered its export-led model with important implications for its foreign policy. Japanese investments in the United States helped abate trade frictions; integrated production was at the heart of the project to rebuild relations with China, and Japan’s lead as foreign investor in Southeast Asia has been a pillar of its blueprint for regional integration. The strains in the rules-based international trade order, however, have raised questions about the ability of global supply chains to continue to operate effectively. The U.S.-China geopolitical rivalry has manifested in a damaging trade war, and moves to restrict tech flows are creating decoupling pressures. The COVID-19 pandemic has exacerbated these trends with lockdowns that disrupt supply chains while export protectionism and calls to renationalize production are on the rise. The intensified risk environment could lead to a second supply chain revolution with a greater emphasis on redundancy and diversification and bifurcation of productive chains. How will Japan respond to the challenges to international production, a central engine of its economic prosperity, and with what consequences for its relations with major powers? To provide greater clarity on this overarching question, this paper is organized as follows. Section 1 describes the central role of Japanese firms in the emergence and deepening of regional production networks. Although Japan’s overall share of intra-regional trade has decreased in the 21st century—in tandem with China’s rise as regional hub- Japanese firms have retained their central role in GVCs (Global Value Chains) through their advanced manufacturing capabilities. Section 2 offers a glimpse of past and recent supply chain shocks—China’s embargo of rare earth metals, the Great East Japan Earthquake in Tohoku, and the Japan-Korea export control dispute—to illustrate both sources of vulnerability and resilience of Japanese GVCs. Section 3 assesses the systemic shift brought about by revived great power competition, and identifies some early adjustment responses from Japanese firms to a new normal of heightened geopolitical tension.
Topic:
Economics, Strategic Competition, and Supply Chains
Political Geography:
Japan, China, and Asia

6. Joint U.S.-Korea Academic Studies 2020

Author:
Gilbert Rozman, Mark Tokola, Gilbert Rozman, Dmitri V. Trenin, Yuki Tatsumi, Kathryn Botto, Rush Doshi, Scott W. Harold, See-Won Byun, Cheol Hee Park, Brad Glosserman, Charles W. Boustany Jr., Matthew Goodman, Wonho Yeon, and Kitti Prasirtsuk
Publication Date:
06-2020
Content Type:
Journal Article
Journal:
Joint U.S.-Korea Academic Studies
Institution:
Korea Economic Institute of America (KEI)
Abstract:
The experts in this volume have thoughtfully addressed themes that are pervasive throughout Asia and are timely for the U.S.-Korea alliance. With the future of Northeast Asia in flux, political leaders are hoping to transform their respective visions into the path forward for the region. Authors in the first section analyze the frameworks of U.S. President Donald Trump, Chinese President Xi Jinping, Russian President Vladimir Putin, Japanese Prime Minister Abe Shinzo, and South Korean President Moon Jae-in to discern the currents underlying geopolitical developments in the region. The second section examines the role of national identity in key bilateral Indo-Pacific relationships where geopolitical fault lines have become clearer. Chapters in this section cover the India-China, U.S.-China, South Korea-China, and South Korea-Japan dyads. The final section provides insights into how several of China’s neighbors and the United States are responding to its economic rise, which, of course, are also guided by strategic concerns. Considering how COVID-19 has exacerbated the rivalry between Washington and Beijing as well as the influence this relationship carries in shaping the future of the region, the contributions here are particularly relevant and timely.
Topic:
International Relations, Security, Economics, and Domestic Policy
Political Geography:
Japan, China, Asia, South Korea, North America, and United States of America

7. ASEAN’s Looming Anxiety

Author:
Kitti Prasirtsuk
Publication Date:
06-2020
Content Type:
Journal Article
Journal:
Joint U.S.-Korea Academic Studies
Institution:
Korea Economic Institute of America (KEI)
Abstract:
The rise of China generally presents both opportunities and challenges, particularly in economic terms. In the past several years, new kinds of challenges have been emerging and are looming larger in ASEAN countries. While ties with Beijing are, by and large, cordial, there are several signs that relations below the state level are increasingly worrisome. First, Chinese foreign direct investment (FDI) is largely not oriented towards manufacturing. A considerable amount tends to be in non-real sectors, such as real estate and casinos, which may not generate much employment and can be unhealthy to local economies. Second, the way Chinese businesses expand tends to be predatory, as demonstrated in tourism-related businesses and the acquisitions of fruit businesses in Thailand. As a consequence, new Chinatowns are emerging as more Chinese are moving into the region. Third, even business expansion through the Chinese government, e.g., the train projects, is far from smooth. ASEAN countries find themselves in uneasy deals – including onerous loan terms, undue requests for land usage along the train lines, stringent technology transfers, and imported Chinese labor. Moreover, the recent COVID-19 outbreak reveals not only the fragility of economic overdependence on China, but also public resentment towards the Chinese. Overall, the relations at the level of business and the people are far from promising, which can become a risk factor in state-to-state relations. The situation apparently demands good management from both Beijing and the counterpart governments.
Topic:
International Relations, Foreign Policy, Economics, ASEAN, COVID-19, and Real Estate
Political Geography:
China, Malaysia, Asia, Vietnam, and Southeast Asia

8. Is China’s Innovation a Threat to the South Korea-China Economic Relationship?

Author:
Wonho Yeon
Publication Date:
06-2020
Content Type:
Journal Article
Journal:
Joint U.S.-Korea Academic Studies
Institution:
Korea Economic Institute of America (KEI)
Abstract:
This paper reviews China’s technological rise and assesses whether it poses a threat to the South Korean economy. In terms of comparative advantage between the two countries, many experts have long believed that China’s strength is low-cost labor and Korea’s is technology and capital. However, this has changed as China’s economy grows. Now China has enough capital to invest in its economy. Some scholars even argue that China has the potential to meet its “innovation imperative” and emerge as a driving force in innovation on a global level.1 This paper examines the Korea-China economic relationship from the innovation productivity perspective, organized into sections: briefly introducing the Korea- China economic relationship; describing the technological rise of China, based on recent data; developing the model to analyze the innovation productivity of China and report the estimation results; evaluating the concern of the South Korean semiconductor industry; and presenting conclusions.
Topic:
International Relations, Economics, Science and Technology, and Bilateral Relations
Political Geography:
China, Asia, and South Korea

9. China’s Economic Rise amid Renewed Great Power Competition, America’s Strategic Choices

Author:
Charles W. Boustany Jr.
Publication Date:
06-2020
Content Type:
Journal Article
Journal:
Joint U.S.-Korea Academic Studies
Institution:
Korea Economic Institute of America (KEI)
Abstract:
American ideals coupled with the commercial self-interest of American business and industry drove the policy of engagement, and even after the 1989 massacre of student protesters at Tiananmen Square, sustained momentum for China’s accession into the WTO. Despite China’s known unfair trade practices, it was thought that problems would eventually disappear as China adopted rules and norms as conditions of its accession to the WTO while deepening its integration into the global trading system. Yet, despite this strategy of engagement, China has not implemented expected substantive structural reforms consistent with the spirit, if not the letter, of its WTO obligations.
Topic:
International Relations, Security, Foreign Policy, and Economics
Political Geography:
China, Asia, North America, and United States of America

10. Chinese Views of South Korea: Aligning Elite and Popular Debates

Author:
See-Won Byun
Publication Date:
06-2020
Content Type:
Journal Article
Journal:
Joint U.S.-Korea Academic Studies
Institution:
Korea Economic Institute of America (KEI)
Abstract:
China and the Republic of Korea (ROK) have experienced periods of conflict and cooperation since officially forging “partnership” relations in 1998. From a historical perspective, Korea was among the most willing participants of the Sinocentric tribute system and its underlying cultural hierarchy. Yet the 2003-2004 dispute over the ancient Koguryo kingdom’s identity marked the first major downturn in the China-ROK relationship since normalization. The rapid expansion of trade, at an average annual rate of 18 percent since 1992, has not prevented the two sides from fighting over political grievances. Most notably under the current Xi Jinping leadership, Beijing’s assertions of unprecedented friendship quickly turned into accusations of betrayal requiring economic punishment. Why and how did China’s policy toward South Korea shift so drastically after two decades of diplomatic normalization? To answer, we must focus on the expectations raised by China’s national identity for ties with South Korea. This study examines the evolution of Chinese views of South Korea with a focus on elite and popular narratives since 2013. Despite increased interdependence, these narratives point to China’s increasingly fragile political ties with Asian partners. Most importantly, China’s growing weight facilitates its strategic combination of economic and discursive tools of diplomacy framed by national identity. Recent tensions over the U.S.-ROK military alliance displayed Beijing’s denial of direct economic retaliation under the cover of public hostility, conveniently blurring the lines between state-led and voluntary actions. By hardening the identity dimensions of conflict, such strategies may only have long-term counterproductive effects of constraining Beijing’s political influence at home and abroad. The four sections below proceed as follows. First, I review two decades of China-ROK relations since the establishment of partnership ties in 1998. I identify two related trends: the intensification of political disputes despite trade, and China’s growing economic leverage in managing those disputes, keeping an eye on the role of national identity. Second, I assess the pessimistic turn in China’s domestic discourse on South Korea in the Xi Jinping period, using official, academic, and media sources. Third, I trace the interaction of elite and popular narratives, focusing on the 2016-2017 dispute over a U.S. missile defense system, Terminal High Altitude Area Defense (THAAD). I briefly extend the discussion to public clashes over Hong Kong in 2019 to underscore the enduring impact of China’s major power and domestic political identities on China-ROK relations. To conclude, I consider the trajectory of bilateral relations under the leadership of Xi Jinping and Moon Jae-in, including the domestic and foreign policy implications of nationalist discourse.
Topic:
Diplomacy, Economics, Public Opinion, and Elites
Political Geography:
China, Asia, and South Korea