South Korea-US Relations Are Troubled by the Inflation Reduction Act

Any EV battery manufacturer will find it difficult to achieve these standards, as the case of lithium demonstrates. More than 80% of South Korea’s imports of lithium, cobalt, and graphite—three essential materials for EV batteries—come from China. China manufactures 85% of the world’s battery anodes and 70% of its cathodes, according to the International Energy Agency. Almost 85% of the anodes and 73% of the cathodes that South Korea uses in its electric vehicle batteries are imported from China.

Why There Are Tensions Between South Korea and the IRA

The worries of South Korea go beyond the specifics of the Inflation Reduction Act. In particular, Seoul has engaged with the Biden administration on supply chain resilience, semiconductors, and climate change to strengthen commercial ties between the US and South Korea. As a result, South Korean businesses have committed to a number of sizeable investments in the US.

In order to allay American worries about semiconductors, Samsung said during the South Korea-U.S. Summit on 2021 that it would invest $17 billion in a new foundry there. This year, SK Hynix revealed that it will invest $15 billion in R&D and a materials and packaging plant.


Additionally, U.S. and South Korean businesses have been working together more on EV investments. South Korean companies are in charge of a large portion of the investment in EV battery manufacturing in the United States and will supply EV batteries to producers in the United States, Japan, and Europe in addition to Korean automakers. In order to increase the manufacture of EV batteries, South Korean companies would together invest more than $13 billion in the United States by 2025.

Hyundai and Kia also stated earlier this year that they will invest $5.5 billion in a combined EV and EV battery production plant in Georgia, in addition to their investments in EV batteries. Once it is operational in 2025, the new facility should be able to generate 300,000 EVs annually.

These EV-related investments are anticipated to generate 35,400 more employment than those made in the EV sector by any other nation.

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Although there are worries that the IRA’s demand that EVs be put together in the US has hurt Korean companies, these worries have been made worse by Seoul’s efforts to increase economic ties with Washington. Additionally, they go against the KORUS FTA’s national treatment provisions.

The Inflation Reduction Act was largely meant to solve domestic inflation and climate change issues in the United States, but it has unintentionally strained relations between the United States and South Korea. As South Korean businesses create new supply chains to satisfy the restrictions against components and minerals from foreign organisations of concern, the IRA may actually help them in the medium run by locking up the U.S. EV battery market. However, in the near term, it has harmed South Korean EV chances in the American market and, more crucially, it has harmed ties with a significant ally of the US.

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