Exports of Korean electric vehicles inevitably will be dealt a blow due to the enforcement of the “Inflation Reduction Act,” which subsidizes only electric vehicles made in North America. The law is designed to provide a subsidy of about 10 million won only to the buyers of electric vehicles that are finally assembled in the United States, Canada, and Mexico. For South Korea, where there is no production plant in North America, the export of electric vehicles, which is expected to be 100,000 units a year, will be disrupted.
The U.S. Inflation Reduction Act aims to secure jobs by excluding China from the global supply chain and increasing production in the U.S. The Joe Biden administration, which was launched with the slogan of “Diplomacy for the Middle Class,” is trying to win over the hearts of the Americans by going beyond the ‘China slap’ and outrightly supporting its own industry, having its eye on the November midterm elections.
This ‘America First’ legislation is expected to cause great damage to Korean automakers. Although Hyundai Motor has so far made 10 billion dollars in investments in the U.S., such efforts will likely be dismissed. What was committed by President Biden to Hyundai Motor Chairman Chung Eui-sun during his visit to Korea in May, saying “thank you” and “you will not be disappointed,” must have been empty promises.
The Inflation Reduction Act is a violation of the rules of the World Trade Organization (WTO) and the Korea-U.S. Free Trade Agreement (FTA), which prohibit differential treatment between domestic and imported products. The United States excluding Korea is preposterous as well as it intends to subsidize products from Canada and Mexico, which are countries with which it signed trade agreements. Considering that South Korea is a key economic and security ally that has created more than 100,000 jobs in the United States, it will only be a right thing for the U.S. to reconsider its discriminatory measures.
The Korean government is asking the U.S. counterpart to exercise maximum flexibility in law enforcement. The Korean government should also become more assertive. To prevent Washington from enacting similar discriminatory legislation, Seoul should demand that the U.S. rectify the violation of the FTA. If necessary, the Korean government should not only file a complaint with the WTO, but also collaborate with European countries. In particular, so as to prevent the situation of "No good deed goes unpunished" from happening any further, the government, businesses, and related organizations should join forces to prepare a preemptive response by reviewing our economy, trade and diplomacy as a whole for potential areas of damage.