Biden’s electric vehicle subsidies a blow to South Korea but a boon to Taiwan

TAIPEI, Taiwan — President Joe Biden’s signature domestic policy victory of the year could be a boon to Taiwan but a blow to South Korea, an allied democracy with a rising role in the U.S.-led effort to mitigate threats from China.

The recently passed Inflation Reduction Act contains billions of dollars to promote clean energy, including expanded tax credits for the purchase of electric vehicles. Those subsidies are available only for electric vehicles that go through the final assembly process in North America. That manufacturing requirement threatens to undercut South Korean powerhouse brands such as Hyundai while driving customers to rivals such as Tesla and their supply chain business partners in Taiwan.

“Taiwan companies supply the material that Tesla needs, so we are a good partnership,” James Hsiao, chief of staff in Taiwan’s Office of Trade Negotiations, told reporters Monday. “If America’s auto industry benefits, Taiwanese industry benefits also. So this is a very important different point between Taiwan and South Korea.”

South Korea has dispatched a delegation to complain about the subsidies, which blindsided Seoul, according to South Korean President Yoon Suk-yeol’s government.

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“We are supposed to choose whether to file a complaint with the [World Trade Organization] or deal with the issue under the FTA procedures,” South Korean Industry Minister Lee Chang-yang told lawmakers Monday. “We will review the two options thoroughly.”

That’s a troublesome turn for Biden, who touted the Inflation Reduction Act as enhancing the American “ability not only to compete with China for the future but to lead the world and win the economic competition of the 21st century.” Biden and his top Cabinet officials have prioritized the improvement of strategic cooperation with South Korea, which favored a conciliatory approach to China over the last five years under then-President Moon Jae-in but has sought more substantial coordination with Washington since Yoon’s inauguration earlier this year.

“We’ve heard the message, and we’ll be sitting down to discuss it. We will try all we can to overcome any differences,” Ambassador Philip Goldberg, the top U.S. diplomat in South Korea, told an audience at Seoul National University. “This wasn’t aimed in any way at Korea, but it is a byproduct that we have to try to resolve.”

For Hsiao, Taipei’s differing attitude toward such subsidies reflects a broader decision to integrate the manufacturing capacities of the Taiwanese and U.S. economies, in contrast with the “very complete” and self-contained “industry ecosystem” that South Korea has cultivated.

“I think Taiwan is not similar with South Korea because South Korea, you know, they have their own brand[s],” said Hsiao. “Taiwan is a different story for the U.S. We have no very complete brand. … We are [in] a close relationship with the U.S.”

Taipei is trying to enhance that relationship and tighten Taiwan’s economic relationship with advanced and developing economies around the Indo-Pacific in defiance of military and economic pressure from the Chinese Communist regime in Beijing. Hsiao and other Taiwanese officials are making the case for Taiwan’s admission to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, a major free trade agreement linking a network of economies throughout the Indo-Pacific and Western Hemisphere.

“Taiwan is committed to aligning our domestic rules with international standards,” Hsiao said. “We know that CPTPP is the highest standard of trade agreements, so we can meet any other high standard.”

Hsiao offered those comments to a group of journalists invited by the Taiwanese government for briefings on Taiwan’s bid to join the Pacific trade pact. The group hails largely from countries that have joined the trade agreement already, as Taipei is trying to make the case for their acceptance into the pact, which will require the consensus of the trade bloc’s current members.

The United States is not a member of the trans-Pacific trade deal because the Obama administration could not secure domestic support for the pact during the 2016 elections despite the U.S. government’s leading role in negotiating the agreement. Biden’s team, for their part, has launched a more modest Indo-Pacific Economic Framework, as well as a new trade initiative with Taiwan that Taiwanese officials hope will bring the U.S. and their island democracy to the brink of a full trade agreement.

“So if we have the Taiwan and U.S. trade initiative, we can enhance the connection with Taiwan-U.S.,” Hsiao said. “And if we have CPTPP, also we can enhance the relationship between Taiwan and Japan and other countries. So this is how we think right now.”

Taiwanese officials hope that the U.S.-Taiwan Initiative on 21st Century Trade, as it is known, will be concluded in 2023. South Korean officials, likewise, expect that Biden’s team will agree to reverse course on the subsidies for U.S.-made electric vehicles next year.

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“We expect some changes regarding the situation after the U.S. midterm elections in November,” said Lee, the industry minister. “We will actively continue discussions with the U.S. and related work under the surface.”