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This is what even made President Biden come to Korea… What the heck is IPEF? [뉴스 쉽게보기]

picture explanationU.S. President Joe Biden waves as he boards Air Force One for a trip to Korea and Japan at Andrews Air Force Base, Maryland, on the 19th (local time). President Biden visited South Korea on the 20th and 22nd and Japan on the 22nd and 24th. [사진 출처 = 연합뉴스]

‘Easy News’, serialized by the Maeil Business Newspaper ‘dig’ team, aims for easy-to-read news. We will organize complex issues, solve difficult information, and deliver it easily.

US President Joe Biden recently visited South Korea and Japan in succession. A new government was established in our country, and it was aimed at strengthening the military alliance, but there was a really important reason. It was to discuss Korea’s membership in the IPEF. IPEF is an abbreviation for ‘Indo-Pacific Economic Framework’. You’ve been on the news all week and you’ve probably heard it. What the hell is this that even the president of the United States went directly to?

◆ Economic cooperation excluding China

The IPEF was officially launched on the 23rd. IPEF was led by the United States to establish close economic cooperation meetings with countries adjacent to the Indian and Pacific Oceans. Except for China. The US is competing with China for global hegemony. These days, China seems to be increasing its influence in the Indo-Pacific region, so they are trying to contain it.

Since President Biden first stated that he would create an IPEF in October of last year, he has been pushing for the establishment of the IPEF in earnest. In addition to the United States and South Korea, the gathering included traditional American allies such as Japan, Australia, New Zealand and Singapore. A total of 13 countries, including India, Malaysia, Vietnam, and the Philippines, participated as early members.

◆ This is not the first time that an economic alliance with the United States has been established.

In fact, Korea already has an economic alliance with the United States. The Korea-US Free Trade Agreement (FTA) has been in effect since 2012. But why is the US trying to form another economic cooperation group? This is because the way economic cooperation around the world is changing as follows.

① World Trade Organization (WTO): global economic cooperation

The World Trade Organization (WTO), which was launched in 1995, was created with the purpose of allowing the world to live well together while free trade. The idea was to make trade between member countries fair and not discriminatory. The WTO also monitors trade-related disputes to determine what is right or wrong and correct the wrong ones. That is why it is also called the ‘United Nations of the Economy’. More than 160 countries are members of the WTO.

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However, as the number of member countries increased, a problem arose. As the times changed, new rules and agreements had to be made, but it was difficult for everyone to agree. It is impossible to satisfy everyone’s interests.

② Bilateral FTA: Economic cooperation between the two countries

That’s why the ‘Free Trade Agreement (FTA)’ between the two countries came out. It is difficult to make a common rule that everyone is satisfied with, so let’s make an agreement that can be satisfied only between the two countries. Because only the two countries have to agree, they give each other more benefits than the WTO. The tax levied on goods when they cross the border is called ‘tariff’. Countries that have signed FTAs ​​lower tariffs with each other when transacting specialties of the two countries. In some cases, restrictions on imported products are loosened as an exception.

③ Mega FTA: Multilateral economic cooperation

However, the limitations of FTAs ​​between the two countries were also revealed. This is because more and more countries are involved in the creation of a single product as the economy and industrial structure become more and more complex. For example, when Apple makes the iPhone, several countries are involved. First, design and development will take place at Apple’s headquarters in the United States. Components such as touch screen displays and semiconductors are made by companies in Korea, Japan, and Taiwan. These parts are assembled in factories located in China. That’s why the ‘Mega Free Trade Agreement (Multilateral Free Trade Agreement)’ emerged. The idea is to enter into FTAs ​​between countries with close economic ties. The United States wanted to form economic alliances with countries in the Indian and Pacific regions.

◆ World’s largest consumption and production area

This is because it has become the world’s largest ‘consumption area’ and ‘production area’. As of 2020, the Indo-Pacific region accounts for 35.2% of the world’s population, 44.8% of gross domestic product (GDP), and 35.3% of trade in goods. The Indo-Pacific region here refers to 14 countries including Korea, Japan, India, Taiwan, Australia, New Zealand, Canada, Mexico, Singapore, Indonesia, Vietnam, Thailand, Malaysia, and the Philippines. These days, China’s influence in the region has grown, and the United States is uneasy. Unlike the US, China is participating in mega FTAs ​​in the Indo-Pacific region.

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It is a mega FTA called the Regional Comprehensive Economic Partnership (RCEP). The agreement was signed in 2019 led by China, and it took effect this year. In addition to China, 15 countries including Korea, Japan, Australia and New Zealand participated. IPEF was conceived by the US to respond to RCEP.

◆ IPEF different from existing economic alliances

However, the US-led IPEF is different from existing economic alliances. The FTA was about lowering tariffs and free trade between us. However, there is nothing in the IPEF about reducing tariffs on each other. In fact, it cannot be considered a mega FTA. Instead, the United States wants new forms of economic cooperation.

What the US wants is ‘Securing the supply chain’. This is because the movement to ‘weaponize’ various resources around the world is expanding recently. China uses the fact that rare earths, which it produces in large quantities, are the main raw material for high-tech industries, and uses it as a means of pressure on other countries. Russia, which started the war, is also threatening to not sell oil and natural gas to Europe. In the past, it was important to conduct efficient trade while lowering tariffs, but now it is most important to secure resources.

◆ The key is semiconductors and batteries

The most important resources for the US these days are semiconductors and batteries. Semiconductors are key components used in automobiles, medical devices, and military equipment in addition to electronic devices. The U.S. started managing the semiconductor supply chain, saying that it must secure enough semiconductors not only for the economy but also for national security. The key countries in the semiconductor industry are clustered in the Indo-Pacific region.

The US shows strength in semiconductor design. Semiconductors designed by American companies are mainly produced in Taiwan and Korea. System semiconductors such as CPU (Central Processing Unit) are produced by Taiwanese companies, and memory semiconductors used to store information are produced by Korean companies. The manufacturing equipment needed to produce semiconductors is well made by Japanese companies. A lot of ‘post-processing’ of packaging and assembling the semiconductors produced in this way and inspecting for any abnormalities is done in Malaysia.

Batteries are also called ‘the rice of the future industry’. Until now, the resource that made the world run was ‘oil’, but now batteries are expected to replace it. Not only electric vehicles, but also smartphones, robots, and IoT (Internet of Things) products that will lead the future all use batteries as power sources.

This area is also important for securing batteries. The battery industry is led by Korea, Japan and China. The US wants to form an economic alliance with Korea and Japan to receive a stable supply of batteries. So that China cannot use the battery as a hostage to threaten the United States.

◆ China does not hide its displeasure

Of course, China did not hide its displeasure. The Chinese government has already criticized the IPEF for having bad intentions to threaten China. China also expressed concern about Korea’s joining the IPEF. Some people are worried that China might retaliate economically against our country.

Despite these concerns, Korea first joined the IPEF. Some people see the new government’s diplomacy being put to the test for the first time. Korea has close ties with the United States and China, respectively. It’s a situation where you don’t have to worry about just one side. Korea, which joined the China-led RCEP, decided to participate in the US-made IPEF seems to be a balance between the two. I hope that the decision made by the new government is the best choice.

[뉴스 쉽게보기]is a weekend serialization of ‘dig’, a new media team of Maeil Business News. By subscribing to the free newsletter created by Digg, you will receive emails every morning of other stories that are read quickly. Search ‘Maeil Economic Newsletter’ and meet Digg’s carefully written letters. You can also link to the subscription page by clicking the ‘Channel’ link on the two reporter pages below.

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