The U.S.-South Korea Industrial and Technological Alliance in the Era of Economic Security
In-gyo Cheong
Professor Emeritus, Inha University
Former Director-General, Ministry of Commerce, Industry and Energy
The Era of the Economic Security Nexus
Since the mid-2020s, the international order has entered an era of the “Economic Security Nexus,” in which the boundaries between military, economic, and technological domains are rapidly converging. Whereas security once served primarily as an outer framework for protecting economic prosperity, control over frontier technologies, access to critical resources, resilient supply networks, and production capacity in strategic industries have increasingly become integral components of national security. This is an environment in which export controls on a single piece of semiconductor manufacturing equipment, disruptions in the supply of critical battery materials, or insufficient maintenance, repair, and overhaul (MRO) capacity for naval vessels can translate directly into national security vulnerabilities.
Against this backdrop, the U.S.-South Korea relationship is also entering a new phase. The tariff and trade agreement reached last year, together with the roadmap for South Korean companies to invest a total of $350 billion in the United States, illustrates this transformation. The plan—which includes $150 billion in shipbuilding cooperation and $200 billion in investments in strategic industries—goes beyond the narrow objectives of addressing trade imbalances or mitigating tariff burdens. It carries wider strategic significance because it positions South Korea as a key manufacturing partner in the global supply chains that the United States is seeking to restructure and creates an opportunity to expand the existing military-security alliance into a broader partnership encompassing industrial, technological, and economic security.
However, large-scale flows of capital and technology do not automatically guarantee shared prosperity. Risks arising from protectionist trade policies, geopolitical fragmentation of supply chains, and the erosion of domestic manufacturing capacity are also increasing. Ultimately, the central question is not how much South Korea invests, but whether those investments are structured so as to strengthen the industrial competitiveness of both countries.
From the Era of Efficiency to the Era of Economic Security
Since the end of the Cold War, the global economy has been structured largely around the principles of cost minimization and efficiency maximization. Global value chains (GVCs), which dispersed production to lower-cost locations while sourcing components and raw materials from around the world, became a major engine of global economic growth. “Just-in-Time” production emerged as a defining feature of an increasingly integrated and efficiency-oriented global division of labor.
However, U.S.-China strategic competition, the COVID-19 pandemic, the war in Ukraine, and geopolitical instability in the Middle East have exposed the vulnerabilities embedded in this model. Heavy reliance on geographically concentrated supply chains reduced production costs, but it also increased exposure to national security risks.
In response, the United States has increasingly treated advanced technologies as strategic national security assets and strengthened technology controls directed at China. The so-called “Small Yard, High Fence” approach initially focused on a limited number of critical technologies, but its application has expanded across a broader range of strategic industries, including semiconductors, artificial intelligence, biotechnology, batteries, critical minerals, and advanced manufacturing. Particularly significant is the evolution of this approach from unilateral U.S. export controls toward coordinated efforts with allies, including Japan and European partners, to manage strategic supply-chain chokepoints.
The MATCH Act, introduced on a bipartisan basis in the U.S. Congress in 2026, illustrates this trend. The legislation proposes coordinating restrictions on semiconductor manufacturing equipment with U.S. allies rather than relying exclusively on unilateral U.S. measures. While the United States, Japan, and the Netherlands are already restricting exports of certain advanced semiconductor equipment to China, the United States has also expanded its measures to encompass certain products manufactured in third countries that incorporate U.S. technology, including through mechanisms such as the Foreign Direct Product Rule (FDPR).
The same strategic logic applies to the battery industry. The Inflation Reduction Act (IRA) provides a framework for restructuring supply chains for critical minerals and components used in electric vehicles and batteries around the United States and its allies. The Foreign Entities of Concern (FEOC) provisions, which have significant implications for Chinese participation, likewise encourage companies to develop supply chains that are less dependent on China.
This extends beyond a temporary trade dispute. It represents a structural transformation in which the organization of global production and the geographic configuration of supply chains are being fundamentally reconsidered.
South Korea: Navigating Crisis and Strategic Opportunity
This realignment presents South Korea with both risks and opportunities. The most immediate risk is that the strategic space South Korea has sought to maintain between the United States and China is narrowing. South Korean semiconductor companies operating production facilities in China could be directly affected by U.S. export controls and evolving supply-chain regulations. Industries that remain highly dependent on China for critical minerals, materials, components, and equipment will likewise face increasing pressure to diversify their supply chains.
At the same time, the opportunities are substantial. As the United States seeks reliable manufacturing partners to reduce strategic dependence on China, the strategic value of South Korea’s industrial capabilities is increasing. South Korean companies possess extensive experience in large-scale manufacturing, mass production, and sophisticated supply-chain management—areas in which the United States faces significant capacity constraints.
South Korea’s challenge, therefore, is not simply to participate passively in U.S.-led supply-chain restructuring. Rather, it is to establish a new framework of cooperation that combines U.S. technology, markets, and capital with South Korea’s manufacturing, mass-production, and supply-chain capabilities in ways that enhance the competitiveness of both economies.
The U.S.-South Korea Alliance Is Evolving into an Industrial and Technological Partnership
For more than seven decades, military security has been the central pillar of the U.S.-South Korea alliance. In an era in which technological capabilities increasingly shape national security, however, the foundation of the alliance will need to expand to encompass industrial and technological cooperation.
In the semiconductor and AI sectors, U.S. strengths in chip design, software, and platforms can be combined with South Korea’s capabilities in memory, manufacturing, and high-volume production. In batteries, the United States’ large domestic market and policy support can be integrated with South Korea’s production technologies and supply-chain management capabilities. In shipbuilding, South Korea’s shipbuilding and MRO capabilities can complement U.S. market demand and national security requirements. Defense, nuclear energy, and broader energy security are likewise strategic sectors in which industrial capacity and national security are closely interconnected.
Institutional mechanisms are particularly important to ensure that large-scale investment in the United States does not amount merely to a transfer of capital. A framework is needed that provides Korean companies with meaningful opportunities to participate in U.S. projects and ensures that their technological and industrial competitiveness is taken into account in the selection of operators and suppliers. Market access, commercial rights, and supply-chain participation commensurate with the scale of investment must also be secured.
Ultimately, the policy perspective should shift from “South Korea building factories in the United States” to “South Korea and the United States jointly developing an integrated industrial ecosystem.”
Key Areas for Sector-Specific Cooperation
Semiconductors and AI are core pillars of a U.S.-South Korea industrial and technological alliance. As cooperation between U.S. technology companies and South Korean firms expands, this creates significant potential to combine U.S. strengths in AI, semiconductor design, and digital platforms with South Korea’s capabilities in memory and advanced manufacturing. As AI adoption accelerates, the strategic importance of areas in which South Korea has established competitive capabilities—including high-bandwidth memory (HBM) and advanced packaging—is likely to increase further. At the same time, important challenges remain, including managing the effects of U.S. export controls on China on Korean-operated production facilities in China and ensuring access to technologies and markets commensurate with the scale of South Korea’s investment in the United States.
In the battery sector, developing supply chains that reduce excessive dependence on China is central. For South Korean companies to maintain stable production in the United States, they will need to diversify their sources of critical minerals and develop supply networks centered on the United States and its allies. At the same time, predictable regulatory conditions are necessary to ensure that tax incentives and other forms of policy support for U.S.-based production remain stable over the long term.
Shipbuilding provides a particularly clear example of how U.S.-South Korea economic and security cooperation can translate into tangible industrial collaboration. The participation of South Korean shipbuilders in efforts to strengthen U.S. shipbuilding capacity, together with their expansion into the MRO market, represents an area of closely aligned interests between the two countries. The United States needs partners capable of helping address aging shipbuilding infrastructure and production constraints, while South Korea can gain access to new markets by leveraging its advanced shipbuilding and maritime equipment capabilities. At the same time, active support from the governments and legislatures of both countries will be necessary to ensure that regulatory or legislative delays do not create undue investment risks for companies.
Defense, nuclear energy, and broader energy security also offer significant potential for long-term cooperation. If nuclear power, small modular reactors (SMRs), liquefied natural gas (LNG), maritime security, shipbuilding, and MRO are integrated into a broader industrial ecosystem, the benefits of such cooperation could extend well beyond individual projects. The key is to ensure that South Korean capital investment in the United States goes beyond job creation to generate commercial opportunities for South Korean companies, facilitate their participation in supply chains, and support sustained technological cooperation.
From a “Contributing Alliance” to a “Growing Together Alliance”
For the $350 billion investment in the United States to achieve its strategic objectives, the principle of mutual benefit must be clearly established. A sustainable alliance cannot rest on the perception that South Korean investment constitutes a one-sided cost undertaken primarily to support U.S. industrial policy.
First is the need to balance contribution and return. South Korean investment should be matched by meaningful access to the U.S. market, technology, and commercial opportunities. Specific supply chains and projects in which South Korean companies can participate should be identified and secured, with these commitments supported by institutional mechanisms rather than one-time assurances.
Second is the joint management of risk. It would be undesirable for U.S. regulatory changes or delays in congressional action to undermine the investment schedules or profitability of South Korean companies. The two governments should establish a standing consultative mechanism and appropriate dispute-resolution procedures to monitor project implementation and address emerging issues. Safeguards should also be developed to minimize the potential effects of large-scale capital flows on South Korea’s foreign-exchange and financial markets.
Third is the joint development of industrial ecosystems. Cooperation should extend beyond individual corporate contracts to encompass broader ecosystems involving research and development, workforce development, materials, components and equipment, finance, and infrastructure. In addition, the two countries should pursue opportunities to enter third-country markets jointly with products and services that combine U.S. technology and software with South Korean manufacturing capabilities. The economic security partnership can evolve into a broader platform for global growth only if U.S.-South Korea cooperation extends beyond the bilateral relationship to markets in the Middle East, Southeast Asia, Latin America, and other regions.
South Korea Must Shape This Realignment, Not Merely Participate in It
The strategic challenge facing South Korea is not simply a binary choice between the United States and China. The central task is to strengthen the competitiveness of South Korean industry while preserving strategic autonomy and supply-chain resilience in a changing international environment.
To achieve this, South Korea must protect its domestic manufacturing base while creating a virtuous cycle between overseas production hubs and domestic R&D and core manufacturing capabilities. To prevent investment in the United States from contributing to the erosion of domestic industrial capacity, South Korea must continue strengthening its capabilities in advanced manufacturing, critical materials and equipment, and R&D at home. This is why a “balanced industrial strategy”—one that simultaneously expands access to overseas markets and upgrades domestic industrial capabilities—is necessary.
The role of government must also evolve. Rather than focusing primarily on supporting individual companies in investment negotiations, the government should integrate sector-specific supply-chain strategies with trade, diplomatic, and financial policies as part of a coherent national strategy. A system should also be established to continuously monitor the outcomes of U.S.-South Korea cooperation and assess whether South Korean companies are actually gaining access to commercial opportunities, technology, and markets.
Conclusion: Mutual Respect and Trust Will Determine the Future of the Alliance
For more than seven decades, the U.S.-South Korea alliance has been grounded in shared commitments to liberal democracy and a market-oriented economy, with military security serving as its central pillar. Over the next seven decades, a new pillar—industrial and technological cooperation—will need to be added to this foundation. In an era of accelerating geopolitical fragmentation and supply-chain restructuring, cooperation in semiconductors, AI, batteries, shipbuilding, defense, nuclear energy, and broader energy security will extend beyond conventional economic cooperation to become an increasingly important component of the alliance’s strategic foundation.
The $350 billion investment in the United States should not be viewed as a one-sided concession by South Korea, but as a strategic investment aimed at jointly shaping the future of both countries’ industrial capabilities. The United States should recognize South Korea’s manufacturing capacity and technological expertise as strategic assets that can strengthen the alliance, while South Korea should leverage the U.S. market and technology ecosystem to enhance the competitiveness and modernization of its industries. Cooperation based on sacrifice by either side will not be sustainable. Only when mutual benefit, commercial rationality, and institutional predictability are secured can large-scale investment become a durable asset for the shared prosperity of both countries.
The future of the U.S.-South Korea alliance will depend not on “who contributes more,” but on “how we grow together.”
The two countries must build trust in industry and technology on the foundation of the military trust that has sustained the alliance and develop a partnership that combines their respective strengths to compete in global markets. When South Korea becomes a key partner in shaping the U.S.-led restructuring of global supply chains—rather than merely participating in that restructuring—the U.S.-South Korea alliance can evolve into a durable economic security and technology partnership, one that extends beyond maintaining stability in Northeast Asia and contributes to the development of new norms, capabilities, and opportunities in the global economy.