An Opportunity for South Korean Economic Diversification
The great power narrative is misguided.
Over the last decade, the inflated threat of China was the central pillar of the rationalization for many Asia-Pacific states’ strategies to align with the United States. The United States, too, uses the China threat inflation implied in the Indo-Pacific Framework as the justification for a containment strategy against China. Amid shifting power dynamics, South Korean President Lee Jae-myung envisions a pragmatic foreign policy. However, the framework of great power competition obstructs Lee’s strategic opportunity to pursue an alternative policy. Containment policy is applied to restrict China’s sphere of influence, which then restricts options for Lee’s foreign policy. South Korea currently employs a hedging strategy that maintains a traditional security relationship with the United States while balancing a trade relationship with China. Given the shifting dynamics based in the current U.S. administration’s practice of economic coercion, hedging is no longer sufficient. If Lee does not act, a strained alliance may negatively impact the South Korean economy. The U.S. administration’s economic pressure provides Lee with a material incentive to diversify the export economy into new markets.
Tariffs Against South Korea
The U.S.–South Korea relationship continues a traditional security pact spanning the course of historical shifts in the world order. In the world today, being aligned with the U.S. does not automatically guarantee material benefits. Whether analyzing the Biden administration’s return to the unipolar moment or the Trump administration’s imperialist actions, the use of tariffs warrants a reassessment of bilateral ties. South Korea is an export economy, and tariffs threaten Korean exports, halting free trade in the process. In April, tariffs on South Korea were set at 25% on all goods. In late July, a deal was made that lowered tariffs on all goods to 15%. Additionally, a trade deal was agreed to that allocates $350 billion total to American investments and $150 billion specifically for shipbuilding cooperation. The purpose of the tariffs is a strategy to pressure Lee to capitulate to primacist demands. Lee can also make a judgment about a high-risk, lower-reward bilateral relationship that would be unsavory for China hawks in Washington. Lee’s pragmatic choice will not cut ties with the U.S., but could take action to neutralize the overreliance on their security relationship with the U.S. On the contrary, leveraging South Korean industry strengths, such as shipbuilding, in striking a deal with the U.S. administration is a strategic use of national strengths in diplomacy. This strategy could be continued, but placed in a different cooperative direction if Lee pursues diversification with regional and global partners.
Lee’s viewpoint of security and economy as a singular unit is essential to understanding the importance of ending overdependence on a great power rivalry. It is possible that a critical juncture of path dependency has already occurred, and Lee could arrive at the realization that it is too late to cut ties with the U.S. political structure that solidified long ago. As great power competition ultimately leads to confrontation, South Korea could struggle to break away if Washington escalates its rivalry with China. The more hostility coming from the U.S., in this case with tariffs, the higher potential for a souring of trade and possibly security relations. The trade weaponization against South Korea is due to the U.S. recognizing a significant trade relationship between South Korea and China. Additionally, the added pressure on South Korea as a means to engrain a bloc politics mindset by forcing a choice may not be the anticipated capitulation the administration thinks it will become. The use of China threat inflation as a premise more clear than truth, perversely justifies U.S. economic coercion against allies, the very same accusations it continues to use against China. Lee and other regional actors are unwilling to play trade roulette for the sake of U.S. primacy. The misguided justification of the China threat inflation is backfiring across the Indo-Pacific. Lee right sizing China could end the great power competition hysteria. Lee must embrace economic diversification by incorporating a multilateral strategy, but could pay a price, as economic diversification will leave an unsavory impression on the traditional security ally.
A Trade Partner in China
A strategic approach for diversifying the South Korean economy starts with strengthening economic cooperation with China. The China-South Korea relationship is maintained by China being South Korea’s largest trading partner. In 2015, the China-South Korea Free Trade Agreement (CSKFTA) established a trade partnership that liberalized trade and accessed the Chinese economy. In June 2025, Chinese exports to South Korea were $12.6 billion, and imports totaled $14.5 billion with a trade deficit of $1.9 billion. This bilateral trade relationship is essential for an export economy as China values South Korean semiconductors. Additionally, after a five-year hiatus, a trilateral meeting between South Korea, China, and Japan focused on rapprochement to strengthen free trade under a unifying threat of U.S. tariffs. Relations between the trio have remained strained with disagreements over territorial issues, sabre-rattling, and unresolved historical grievances. Rapprochement could be a point of leverage for Lee under the shared threat of economic tensions with the U.S. Increasing cultural ties within the trilateral cooperative is a challenging hurdle, but if resolved, it could provide multilateral economic advantages. Lee must go beyond maintaining and mending relations; the diversification strategy needs to expand to the BRICS economic bloc.
The BRICS Opportunity
Lee has the option to integrate the Korean economy into the BRICS+ alliance. BRICS nations comprise 40% of the world’s population and about 30% of global GDP. The International Monetary Fund projects BRICS contributing 50% of the worldwide GDP in the future. The New Development Bank is a BRICS financial institution that started as a $100 billion allotment. Lee can utilize the NDB to influence global economic governance on infrastructure and sustainability projects. Furthermore, the South Korean Indo-Pacific strategy, which prioritizes infrastructure development, provides a ready foundation for BRICS engagement. NDB integration could reduce overdependency on the IMF and the World Bank financial systems. Also, the contribution to BRICS initiatives could propel the integration process for South Korea. BRICS is rising as a powerful economic bloc of Global South emerging economies, and it is right to recognize a strategic economic opportunity based on multipolarity. A policy that emphasizes South Korean national interests as a credible reason for diversifying the export economy towards BRICS+ is a realistic choice. Since South Korea is not a BRICS+ member, diversification would require diplomatic outreach through strengthening cultural ties, similar to how Lee views improving cultural ties with China.
South Korea’s alignment with BRICS as a neutral partner, while maintaining diplomatic relations with the U.S., provides Lee with diplomatic leverage and advantages in a multipolar world. Overdependence on the U.S. is a weak point for South Korean sovereignty. Instead, Lee can focus on a relationship with the Global South. National strengths of South Korea include semiconductors, batteries, and shipbuilding, which were leveraged in the U.S. trade deal and could also appeal to new economic partnerships across the BRICS+ regions. Utilizing South Korea’s national strengths across industries can help tie together a credible policy of diversification for domestic and foreign audiences alike. South Korean engagement with BRICS+ is a strategy that looks beyond great power competition based on multilateral cooperation. Lee could establish access to new markets, supply chains, and cooperation on infrastructure projects with new partners, providing strategic incentives for the Korean economy. Lee should not fall into a geopolitical trap of having to engage in an escalation that leads to conflict among great powers.
Economic Diversification Increases Autonomy
As the U.S. views itself as a declining power, coercive tactics are arbitrarily justified toward states like South Korea. President Lee Jae-myung has a chance to change South Korean foreign policy. An oversimplified false choice of China or the United States only promotes great power hysteria. Economic coercion serves as a mechanism for zero-sum thinking that compels states to realign with great power interests. Neutralizing great power competition could provide material gains for South Korea. Diversification of exports across existing and new trade partnerships to increase independence away from great power rivalry is the solution. Lee can diversify the South Korean economy with deeper ties to China as well as across BRICS nations. The result is more independent decision-making in South Korea, which can leverage diplomacy and capitalize on opportunities for economic prosperity. This is the logical outline for an independent foreign policy based on South Korea’s national interest. South Korea has sovereignty; it is time to use autonomous action to neutralize great power competition.
Editorial contributions by Rachael Rhine Milliard
The views and information contained in this article are the author’s own and do not necessarily represent those of The Asia Cable.
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