How South Korea Is Honing a Competitive Edge

South Korea’s economic transformation is a familiar story, but it has also produced misperceptions. Large, often family-run, corporations known as chaebols were crucial to catapulting the country’s economy ahead, especially the restructurings, R&D, and fierce competition following the 1997 Asian financial crisis. But since then, South Korea’s economy has continued to evolve in important ways that sometimes go unrecognized. Battle-tested conglomerates and start-ups have both become important engines of growth amid a highly competitive, globalized business environment characterized by relentless digital innovation, trends that are likely to continue for the foreseeable future.

South Korea’s Remarkable Growth

Assessing a country’s economic competitiveness involves numerous factors, but per capita GDP is one of the most simple and clear-cut. In 1994, South Korea crossed the $10,000 per capita GDP threshold, but this transition also introduced the possibility of falling into the middle-income trap without joining the ranks of high-income countries. Yet South Korea managed to avoid this fate. Twenty-three years later in 2017, Seoul reached another milestone: exceeding the $30,000 per capita GDP mark and entering the pantheon of advanced economies.

Seoul succeeded in part by focusing on two critical drivers for sustained growth: upgrading technology and maximizing management efficiency. Beyond that, South Korea evaded the middle-income trap through a combination of three factors: R&D, manufacturing, and exports. Other than Israel, South Korea is the only country that spends more than 4 percent of GDP on R&D. Coincidentally, Seoul reached 2 percent of GDP in R&D spending in 1994—the same year it crossed the $10,000 per capita GDP threshold. South Korea invested more than 4 percent of its GDP in R&D for the first time in 2014, and in 2019, that figure reached 4.6 percent. In 2020, South Korean corporate R&D accounted for 79 percent of the country’s total R&D spending as a share of GDP, while the shares of R&D spending by the government and higher education were around 12 percent and 9 percent, respectively. These investments enabled South Korea to become a global player in semiconductors, mobile phones, electric vehicle (EV) batteries, automobiles, and other premium consumer goods. Today, South Korea is the world’s tenth-largest economy, and it ranked as the fifth-leading country for manufacturing output in 2015 according to a Brookings Institution report.

Hard power alone does not account for South Korea’s economic success. Several other factors have contributed including the wave of growing South Korean soft power, the restoration of democracy in 1987, the decision to fully liberalize imports in 1989, and the move to join the Organisation for Economic Co-operation and Development in 1996. South Korea is also the only former aid recipient to become a donor country since World War II. Combined, these efforts triggered cascading ripples across the country’s political, economic, sociocultural, and technological arenas.

Chaebols, Start-ups, and Economic Growth

How much do large corporations contribute to a country’s growth? Until the explosion of big tech companies such as Amazon, Apple, Facebook (now known as Meta), and Google in the United States or their Chinese peers (Alibaba, Baidu, Huawei, and TenCent) in the 2010s, the global economy was led by traditional multinational corporations. A number of the corporate powerhouses that have fueled South Korea’s half-century of remarkable growth are chaebols. Among the most prominent ones are Samsung, SK, Hyundai, LG, and Lotte. Numerous factors helped spur the growth of the world’s leading technology giants and other crucial multinational firms, but four in-country indicators are important.

First, the greater the size of a firm’s home economy, the greater its ability to achieve critical scale tends to be. Given the myriad risks of expanding into overseas markets, firms that already reached scale domestically are often better able to absorb costs and cover the risks of international ventures. Second, domestic consumers’ demand for sophisticated, high-quality goods and services drives companies to work assiduously to improve. Third, an advanced science and technology environment, including competitive universities and high-skilled knowledge workers, spurs innovation. And fourth, a competitive industrial ecosystem in a firm’s home country often encourages it to pursue innovation and strive for high productivity.

The country that most stands out on all four indicators is the United States. It also has the world’s key reserve currency and self-sufficient energy resources, other attributes that make it a formidable global economy. As table 1 shows, various indexes for ranking top corporations feature many U.S. and Chinese firms, as well as a handful of companies from other leading manufacturing powers like Japan, Germany, and South Korea.

Given the size of South Korea and how competitive the globalized economy is, even having a few firms like Samsung and Hyundai in the Fortune 100 and other rankings is a notable achievement. Meanwhile, other South Korean companies continue to make inroads. Several other South Korean firms fall outside the Fortune 100 but still are listed in the Fortune 500, including LG, POSCO, Hyundai Heavy Industries, and SK Hynix. Big South Korean tech companies such as Naver and Kakao still lag global leaders in sales, but their market valuations are growing rapidly.

Table 1: Leading Firms Among the Top Advanced Economies
Country	FT’s the Top 100 Companies (June 2020)	PWC Global Top 100 Companies by Market Capitalization (June 2020)	Fortune’s Global 100 (2020)	Top 100 R&D Spending by Firms (2019)
United States	47	59	34	35
China	24	13	24	10
Japan	3	3	8	15
Germany	1	1	7	12
South Korea	3	1	3	4
Note: These figures represent the number of firms from each country in the respective rankings.

How much did South Korea’s economic environment contribute to the growth of the chaebols? As the aforementioned statistics show, in the early twenty-first century, South Korea has an edge in R&D investments and falls in the middle in terms of its economic size and industrial ecosystem. The South Korean market is also known as a key test bed for global firms due to its wealth of early adopters of key trends and its choosy consumers.

Conversely, how do firms contribute to national economic development? Do companies’ competitive edges fuel a country’s national economy, is it the reverse, or perhaps some of both? This is a key question in the minds of South Koreans, even though they feel a surge of pride when they see South Korean products from titans like Samsung and LG with a global reach. Many believe that the chaebols succeeded because of protectionism and other favorable government policies in the 1970s and 1980s. That said, successful businesses also help countries address issues like a lack of trained human capital at the early stages of industrialization.

Either way, the vital point is that globalization and international competition sharpened and strengthened South Korean firms (including the chaebols) starting in the mid-1990s and early 2000s. Chaebols went through massive transformations driven by intensive R&D pushes. The 1997 Asian financial crisis was a key turning point. Through massive disruptions but also unparalleled innovations, South Korean companies (including chaebols) became more competitive and global. Samsung’s former chairman Lee Kun-hee, who pioneered the company’s “new management” mantra beginning in 1993, oversaw a landmark achievement a little over a decade later in 2004 when Samsung Electronics recorded $10 billion in profits for the first time in its history. South Korea’s economic trajectory from the 1990s to the 2020s, led by information and communications technology and services, has differed substantially from the country’s growth in the 1970s and 1980s, which was based on heavy industry and chemical manufacturing.

Meanwhile, South Korea’s second phase of economic growth since the mid-1990s has been driven largely by an array of private companies (including start-ups), despite arguably excessive government regulations. Table 2 illustrates just how much innovative South Korean firms have contributed to the country’s economic prospects. South Korea ranked eighth in the world in the 2022 International Institute for Management Development’s (IMD) World Digital Competitiveness Ranking, and the country came in sixth in the World Intellectual Property Organization’s 2022 Global Innovation Index. South Korea would not have managed to become a leader in the digital technologies of the Third Industrial Revolution without the private sector, and domestic companies have played an indispensable role amid the accelerated technological innovations of the Fourth Industrial Revolution in the 2010s as well.

While South Korea’s 1.4 percent share of global unicorns (start-up firms with a valuation of more than $1 billion) is relatively small compared to those of the United States (53.8 percent) or China (14.6 percent), table 2 still shows hints of the rapid transformation that South Korea’s start-up ecosystem has undergone. In particular, as the digital economy experienced an explosive expansion during the early stages of the coronavirus pandemic, South Korean start-ups exhibited remarkable growth in 2021. The total capital flowing into these companies reached $100 billion for the first time last year, according to a research firm called the Startup Alliance. 

Table 2: Leading Innovative Economiess
Country	WIPO’s Global Innovation Index (2022)	IMD’s World Digital Competitiveness Ranking (2022)	StartupBlink's Global Startup Ecosystem Index (2022)	Share of Global Unicorn Firms (% of global share as of September 2022)
United States	2	2	1	53.8%
China	-11	17	10	14.6%
Japan	13	29	20	0.5%
Germany	8	19	6	2.4%
South Korea	6	8	21	1.4%
World Intellectual Property Organization, “Global Innovation Index 2022,” 2022, https://www.wipo.int/global_innovation_index/en/2022; IMD World Competitiveness Center, “World Digital Competitiveness Ranking,” 2022,https://www.imd.org/centers/world-competitiveness-center/rankings/world-digital-competitiveness; StartupBlink, “Global Startup Ecosystem Index Report,” 2022, https://lp.startupblink.com/report; and CBI Insights, “Complete List of Unicorn Companies,” September 2022, https://www.cbinsights.com/research-unicorn-companies

The National Security Implications of Emerging Technologies

The digital innovations of the Fourth Industrial Revolution have coincided with a resurgence of great power competition, especially between the United States and China, highlighting the critical importance of resilient supply chains. Soon after he was inaugurated, U.S. President Joe Biden stressed the strategic value of semiconductors, EV batteries, medical supplies, and rare earth minerals. Moreover, lowering dependence on China for these resources and products is seen as a central reason for forging more secure supply chains for goods and services with major national security implications.

In May 2022, Biden visited Seoul just ten days after President Yoon Suk Yeol was inaugurated. As soon as Biden touched down in South Korea, his first official visit was to the Samsung Electronics plant in Pyeongtaek where he was hosted by then Samsung vice chairman Lee Jae-yong (who was promoted to chairman in late October), and his last meeting with South Korean representatives before leaving the country was held with Hyundai Motor Group Chairman Chung Euisun. These visits not only highlighted the growing importance of economic security in South Korea’s alliance with the United States but also the heightened global prominence of South Korean firms.

Yoon and Biden agreed to build a comprehensive bilateral partnership spanning several leading-edge technologies (like semiconductors, AI, and ecofriendly EV batteries) as well as critical tasks such as fighting climate change and building more resilient supply chains. During Biden’s visit, the Hyundai Group pledged to invest a total of $10.5 billion in the United States. A year earlier following a bilateral summit in Washington in May 2021, South Korean firms including Samsung, SK, LG, and Hyundai had announced a combined investment package of $39.4 billion in the United States.

These summits are just one sign that South Korea and its major companies today are no longer static recipients of security benefits; rather, they are contributing vitally to the long-term national security of South Korea and its partners like the United States.

But this does not mean that the chief executive officers of leading South Korean firms are in a comfortable position. Washington wants leading South Korean companies in key sectors such as semiconductors and EV batteries to extract themselves from China-centric supply chains and join U.S.-oriented ones. Yet South Korean companies cannot ignore the Chinese market. China accounts for roughly one-fourth of the global demand for semiconductors, which is about the same level (by some measures) as the United States. If U.S.-China competition intensifies to the point of conflict, South Korean firms will be in a tough bind.

How Corporate South Korea Is Changing

Global competition and innovation are changing what the typical South Korean company looks like. One of the most recent changes in the South Korean economy is the rapid rise of start-ups. As recently as 2011, all of the country’s top ten companies by market valuation were chaebols and subsidiaries. A decade later in 2021, startups like Coupang and Naver made it into the top ten, followed closely by Celltrion (eleventh) and Kakao (twelfth). The remaining companies in the top ten are chaebols,, but they can only remain on top through the brutal pressures of continual innovation. It is time to let go of the old perception that South Korea’s economy is still dominated by old-style chaebols.

Small and medium-sized enterprises (SMEs) remain a key issue for South Korea’s economic future too. It is undeniable that the Big Five chaebols have a commanding presence in terms of capital, technologies, skilled human capital, superior management capabilities, and brand power. They are both competitive and profitable. By comparison, when South Korea’s economic takeoff began in earnest in the 1970s, only a handful of SMEs had key technological know-how. Hence, conglomerates led the way in importing plants and technologies, with most components and materials coming from Japan.¹ Conversely, Japan’s SMEs have higher technological capabilities since industrialization began there in the 1880s, whereas for most of South Korea’s SMEs that process dates to the 1970s.

Still, as South Korea’s age of industrialization crosses the half-century mark, highly competitive SMEs are emerging. That said, competition has had societal costs too. It is true that there are more than 5 million self-employed people in mostly service industry professions. Some of these people are going through a stark contest for survival, especially amid the current pandemic. This is a huge social problem.

South Korea’s economy has changed significantly. The popular imagery of the South Korea of an earlier era among observers in the United States was shaped by reruns of the television show MASH, North Korean provocations, and exports of cheap electronic products. Today, audiences across the United States and around the world have begun recognizing South Korean soft power (especially movies and dramas), high-quality consumer goods, and technological prowess. These changes have forced all South Korean firms to embrace competition to excel—chaebols and start-ups alike. Entering the 2020s, the pandemic has accelerated the speed of digital transformations and shifts in the global business environment. The South Korean economy and individual firms could be reaching another critical turning point similar to the 1997 crisis that spurred an earlier stage of innovation.

Notes

¹ Kim Kwang Mo, Korea’s Heavy Industry and the Spirit of Park Chung-hee (Seoul: Giparang, 2015). See chapter two.

In watercooler conversations about the Korean Peninsula around Washington, DC, headline-grabbing topics like North Korea’s nuclear arsenal tend to dominate. It can be easy to lose sight of long-term trends amid the flurry of day-to-day activity.

A closer look reveals important ways that Seoul has gradually stepped into a more robust role as a global partner in the past few years, ranging from crucial technological issues to greater soft power influence. While this progress is notable, South Korean President Yoon Suk Yeol, who was inaugurated in May 2022, must put in place a viable strategy that will enable Seoul to assume a larger international profile with corresponding responsibilities.

South Korea Steps Out on the World Stage

Although the Seoul-Washington alliance continues to be dominated by traditional security and trade issues, South Korea has also gradually become a more active partner in a diverse range of areas including supply chains and energy. Seoul’s rise as an all-around player has key implications for global affairs and especially for South Korea’s alliance with the United States. This is particularly true as South Korean policymakers seek to navigate the increasingly volatile U.S.-China great power rivalry and as South Korea emerges as a critical hub in reconfigured post-pandemic global supply chains. In an ever more polarized world beset by worsening climate change and high-tech turf wars, South Korea’s contributions to strategically vital supply chains could prove pivotal. Being an indispensable ally is no longer just a matter of acquiring more hard power capabilities; it is also a matter of honing versatility.

Still, Seoul has a difficult balancing act on its hands. As one of the countries most affected by the U.S.-China crossfire, South Korea’s task of preserving cordial ties with both of these giants will grow more difficult. But that cannot stop South Korean policymakers from defending their country’s interests. Pressure will continue to mount on South Korea to overtly choose sides. Seoul should respond by significantly ramping up its efforts to build new supply chains that are not as dependent on China. South Korea has not yet made an announcement, but the Yoon government is likely to join the so-called Chip 4 Alliance proposed by U.S. President Joe Biden for building a more resilient semiconductor supply chain together with the United States, Japan, and Taiwan.

South Korea must also elevate its status as a role model for innovation-driven growth fueled by breakthroughs in Fourth Industrial Revolution technologies such as artificial intelligence. With its advanced manufacturing base, South Korea can become a major global leader going into the 2020s and beyond. Such ambitions are already starting to bear fruit. During a visit to Seoul in June 2020, Keith Krach, who was then the U.S. under secretary of state for economic growth, energy, and the environment, stressed the growing importance of South Korea as an economic and technological powerhouse. He also emphasized that if China put pressure on South Korea, the United States would stand by its side.

The private sector has gotten in on the act too. Less than two weeks after Yoon’s inauguration, Biden visited South Korea. During a stop at a Samsung plant, he remarked, “I’ve just seen how this plant makes the most advanced semiconductor chips in the world,” and Yoon stated that he would upgrade South Korea’s alliance with the United States “into an economic-security alliance.” In a joint statement, Biden and Yoon noted that the alliance is a “linchpin for peace and prosperity in the region” and that the alliance “has grown far beyond the Korean peninsula, reflecting the pivotal role of our countries as global leaders in democracy, economy, and technology.”

A flurry of investment deals has been unveiled in the buildup to and aftermath of this visit. At the end of his visit, Biden met with Hyundai Motors Chairman Chung Euisun, and Hyundai announced a $10 billion investment to build electric vehicles and related technologies in the United States. This built on a similar move the year before, when Samsung announced that it would invest $17 billion in a new chip-manufacturing foundry in Texas. Meanwhile, in November 2021, the SK Group announced that it would invest some $52 billion in the United States by 2030. Chairman Chey Tae-won underscored the importance of reducing carbon emissions, saying, “half of [planned investments] will be channeled into eco-friendly businesses, including electric vehicle batteries, hydrogen and energy solutions so that we will be able to contribute to U.S. emission cuts.”

Capturing Global Attention

South Korean cultural exports have also taken the world by storm. Just consider the global sensation surrounding the South Korean pop group BTS and the splash made by Squid Game, Netflix’s most-watched drama in 2021. Meanwhile, the film Parasitewon the Academy Awards for Best Picture and Best Director in February 2020, becoming the first non-English film to win the prize for the year’s best film. In another first, South Korean actor Youn Yuh-Jung took home an Oscar for Best Supporting Actress in April 2021 for her role in the film Minari. All these indicators show the growing prevalence of South Korean pop culture, a phenomenon known widely as the Korean wave or Hallyu. However, for the Korean wave to be sustainable over the longer term, critical investments must be made in developing diverse forms of content. Moreover, cultural cachet and soft power obviously cannot alleviate hard security threats such as curbing North Korea’s nuclear arsenal. Even so, heightened cultural influence is another sign of South Korea’s growing international stature.

According to press accounts of a 2021 report on Hallyu by the Korea Foundation, the collective membership of worldwide fan clubs for South Korean pop culture surpassed the 100 million mark as of September 2020, adding nearly 5.5 million more fans compared to 2019. Meanwhile, the Netflix hit Squid Gamereached an estimated viewership around the world of more than 140 million. An astounding 95 percent of those who watched the show reportedly were located outside of South Korea. Despite the seemingly out-of-the-blue success of the thriller series, South Korean television shows and movies already had been on the rise. Netflix invested some $700 million in South Korean films and shows between 2015 and 2020, and the company was slated to pour more than $500 million into such products in 2021.

Think tanks in the Beltway have caught on to the growing importance and relevance of South Korean soft power. In December 2020, the Carnegie Endowment for International Peace was the first to report on this trend with a collection called “The Case for South Korean Soft Power.” Ten months later in October 2021, Sue Mi Terry, who currently works at the Wilson Center, wrote an article for Foreign Affairs where she noted that “South Korea has now become a global soft-power juggernaut.”

It can be difficult to tabulate the tangible returns from South Korea’s soft power, but Seoul’s stock clearly appears to be on the upswing. According to the 2021 Global Hallyu Trends report published by the Korea Foundation for International Culture Exchange, South Korean cultural exports topped $10 billion in 2020, a figure that was nearly 9 percent higher than in 2019. In 2021, Bloomberg revealed that Netflix reported that its business in South Korea was responsible for a $1.9 billion boost to the country’s economy. South Korea’s cultural exports pale in comparison to other leading export sectors such as semiconductors ($99.2 billion in 2020), but they surpassed other economic sectors like makeup and household appliances.

There are many reasons why South Korean cultural exports are gaining traction. These include the convergence of key factors such as heavy investments made in information and communications technology and broadband access early on as well as the government’s recognition of the importance of cultural industries starting in the early 1990s. But perhaps the most important factor was the restoration of South Korean democracy in 1987 and the way South Korean firms were thrust into global competition. Before then, decades of heavy-handed censorship; limitations on importing foreign movies, books, and magazines; and virtually nonexistent pathways for exporting South Korean cultural products stifled opportunities for building Seoul’s soft power.

The ebbs and flows of the fortunes of South Korean cultural wares in China is instructive. Initially, South Korean movies and dramas were hugely attractive in China, but the 2016–2017 controversy of China’s reaction to Seoul’s decision to host a U.S.-supplied Terminal High Altitude Area Defense system escalated to China’s banning of South Korean movies and dramas. Xinhua, China’s official news agency, noted in 2016 that banning South Korean shows “reflects Chinese placing love for their home country before popularity of entertainment stars.” In August 2021, the Cyberspace Administration of China announced new regulations that severely restricted “marketing activities to stimulate fan consumption,” a move that further dampened South Korean album sales in China. In hindsight, cracking down on South Korean cultural exports to China not only heightened anti-Chinese sentiments in South Korea but also may have pushed South Korean content providers to expand into non-Chinese markets.

South Korea and the Global Commons

South Korea’s March 2022 presidential election was a litmus test for the country’s leaders and voters alike. To succeed, South Korea must become a stronger liberal democracy, do more to help mitigate major global challenges, increase its foreign aid offerings, and become a genuine innovation hub by incubating start-ups that master the emerging technologies of the Fourth Industrial Revolution.

South Korea faces a tall order to sustain and strengthen its global competitiveness, a task for which two elements are particularly relevant. First and foremost, there’s a widely shared perception in Washington that South Korea is not doing all it could to help check China’s rise. U.S. officials often don’t fully appreciate what a delicate balancing act Seoul must strike to maintain productive ties with China—not only to cultivate economic exchanges but also to ensure as much support from Beijing as possible for denuclearizing North Korea, although no substantive progress has been made yet. A major challenge for the Yoon administration is formulating more effective diplomatic and political discussions with the White House on these matters.

In addition, South Korea must be more proactive about speaking out against human rights violations in North Korea and other authoritarian states in Asia. During the tenure of Yoon’s predecessor, Moon Jae-in (2017–2022), Seoul made every effort to downplay or ignore North Korea’s human rights abuses in order to foster inter-Korean dialogue. In this context, South Korea passed a law in December 2020 banning activists based in South Korea from sending leaflets decrying North Korean abuses across the border. As a Reuters report noted, “The change was approved despite efforts by opposition lawmakers to block the super-majority of the ruling party [at the time] of [then p]resident Moon Jae-in, who [was] keen to improve cross-border ties.” With the change in government in May 2022, however, the conservative Yoon administration has stressed the importance of speaking out to condemn North Korea’s human rights violations. In July 2022, Yoon appointed a Korea University professor named Lee Shin-hwa as envoy for North Korean human rights. The post was created in 2016 but had been left vacant for much of the Moon administration.

Meanwhile, changes to South Korean press freedoms in a recent National Assembly bill were quite worrying. The bill would have significantly raised the courts’ ability to penalize reporters and media outlets by levying steep fines or even the threat of prison time, which would have seriously undermined press freedom. While the bill did not receive much attention in Washington, it faced criticism from several major media organizations, including the International Press Institute, Reporters Without Borders, and the World Association of News Publishers. After a UN representative expressed concerns about the legislation and domestic sentiment about the law grew increasingly negative, the Democratic Party—which will continue to hold a large majority in the National Assembly until the country’s next general election in April 2024—eventually withdrew the bill at the eleventh hour in December 2021. However, the prospect of such legislative change itself seriously undermined another pillar of South Korea’s democracy and international standing.

In recent years, South Korea has grown markedly as a rising economic and technological powerhouse, as one of Asia’s most vibrant democracies, and as a pivotal security partner. While there is much to celebrate about Seoul’s growing stature, it also faces major challenges including a worsening security environment, demographic headwinds, rising social welfare costs, and the mounting effects of the sharpened U.S.-China rivalry. But if the past three to four decades are any guide, there is good reason to be cautiously confident that South Korea can surmount these difficulties and emerge as one of the United States’ most valued allies in the post-pandemic era.

For South Korea to increase its value as an important global player, the country’s new president must exhibit strong leadership. Although South Korean exports, soft power, and growing international acclaim are all necessary ingredients for making South Korea a key global partner, what really matters in Washington and other major capitals is a consistent message from Seoul in favor of greater international engagement, heightened responsibility for contributing to the global commons, and a commitment to speaking out more forcefully on the importance of freedom and democracy.

As the applications of artificial intelligence (AI) in critical sectors like healthcare, smart cars, and military affairs continue to multiply, countries are seeking to realize technology’s economic and national security benefits. To capitalize on these opportunities and spur technological innovation, countries are scrambling to build healthy AI ecosystems.

As South Korea tries to secure its economic competitiveness, AI will be a crucial testing ground, and a good point of comparison for its efforts is Japan—another high-tech regional power in Asia that is seeking to capitalize on AI. Although most conversations on AI revolve around the capabilities of leading powers like the United States and China, South Korea and Japan also offer unique strengths that should not be overlooked.

With similar export-led growth models, Seoul and Tokyo have cemented their status as high-tech powers. The two countries are already both key players in the global supply chain for cutting-edge semiconductors, which are needed to build AI systems. But both countries are also aiming to become hubs for AI innovation so that they can reap AI’s national security and economic benefits. To do so, South Korea and Japan have laid out plans to catch up to the United States, China, and major EU economies.

To understand the global contours of AI ecosystems, one should consider not only the two leading players, the United States and China, but also mid-tier players such as Japan and South Korea. By focusing on three core building blocks of a thriving AI economy, it is possible to build a general understanding of the strengths and weaknesses of South Korea’s and Japan’s respective ecosystems.

The Building Blocks of AI

AI broadly refers to machines that are capable of simulating human-like behavior to accomplish a variety of tasks, ranging from language processing to complex decisionmaking. Over the past thirty years, the field of AI has become increasingly diverse and sophisticated, leading to the rise of subfields such as machine learning, which is currently at the center of AI-driven research and development. AI has the potential to spur rapid productivity gains across the private and public sectors with applications ranging from online customer service platforms to semiautonomous weapons. Governments around the world understand that AI-driven systems will have dramatic implications for national security, economic prosperity, and military power.

Modern AI systems require three core components: data, computing power, and algorithms. (Although additional inputs such as talent and government policy are also needed to develop a robust AI ecosystem, they are beyond the scope of this piece.) However, while national comparisons on computing power can be made by looking at the semiconductor supply chain and cloud computing, it is difficult to make comparisons about algorithms and data.

Accurate AI systems also rely on large quantities of data to learn how to identify patterns and make predictions. In addition to quantity, these data sets must also be high quality and diverse because AI systems inevitably reflect the limitations of their underlying data. It is challenging to size up the quantity, quality, and diversity of a country’s data resources because that is proprietary information—primarily held by individual private companies who have little incentive to share it. To date, there is no clear way to rank countries based on their access to good data. This remains a fruitful area for future work.

Algorithms provide the instructions for how to process data inputs; machine-learning algorithms draw insights from data on their own, rather than being explicitly programmed. Algorithmic breakthroughs are quickly published in open-source academic publications, allowing that information to easily diffuse across national borders. This also makes it difficult to compare countries’ prowess in algorithm development—of which algorithm research is one component. Instead of looking at algorithms, this analysis compares South Korea’s and Japan’s contributions to cutting-edge AI research, as both countries are global leaders in this area.

Lastly, firms need computing power to train and deploy AI systems. Firms can increase their computing power through two main mechanisms: purchasing cloud computing services or securing semiconductors to build an in-house data center. Cloud computing or an in-house data center is also needed to store and manipulate large data sets. Small- and medium-sized enterprises usually rely on cloud computing services to build their AI systems. Large firms, meanwhile, often have sufficient resources and internal demand to build their own data centers. Both types of computing power rely on the fundamental building block of the digital age: the semiconductor. South Korea and Japan each play a crucial role in the semiconductor supply chain. Looking at two of these critical factors—computing power and cutting-edge AI research—helps shed light on the strengths and weaknesses of South Korea’s and Japan’s AI ecosystems.

Computing Power: Semiconductors

To maintain a resilient AI ecosystem, countries need to secure continued access to cutting-edge semiconductors. A steady supply of semiconductors is especially necessary for building local computing capacity with advanced AI capabilities—supporting in-house data centers and public cloud computing alike. Once a niche topic, semiconductors are now firmly embedded in public discourse, primarily due to the global shortages triggered by the coronavirus pandemic, which delayed sales of countless products from ovens to smartphones. While the United States, China, and Taiwan are typically identified as the predominant players in the global semiconductor supply chain, South Korea and Japan also play pivotal roles.

South Korea’s strength is fabricating leading-edge microchips. The country has steadily grown its share of global semiconductor manufacturing capacity from virtually zero in 1990 to 21 percent in 2020. Over the same period, Japan’s share declined from 19 percent to 15 percent.

Japanese officials have acknowledged that the country is behind on semiconductor manufacturing and is seeking to improve. However, in the short term, Japan will continue to depend on semiconductor imports. The share of domestic Japanese demand for semiconductors satisfied by imports (import penetration) has steadily risen since 2000. Meanwhile, over the same period, South Korea’s import penetration has steadily declined. This indicates that, while Japan’s reliance on semiconductor imports has increased, South Korea’s has dropped (see figure 1). Furthermore, much of Japan’s capacity is geared toward manufacturing less-advanced chips, while South Korea and Taiwan lead at the cutting edge.

For now, only South Korea and Taiwan are in the enviable position of being able to fabricate the most advanced semiconductors, which are needed to train the most competitive AI systems. Innovation in semiconductor fabrication is measured in process nodes, whereby more advanced technology can etch wafers with greater precision. Today, South Korea’s Samsung and Taiwan’s TSMC are the only companies in the world that can produce commercially viable chips at the most-advanced 5 nanometer node, which they do by using next-generation extreme ultraviolet (EUV) lithography machines. When it comes to fabricating the most advanced chips (4–5 nanometers), as of 2021, Samsung is responsible for an estimated 31.3 percent of global capacity while TSMC is responsible for 66.8 percent. The remaining 1.9 percent is noncommercial research capacity maintained by the Interuniversity Microelectronics Centre (IMEC) in Belgium.

Both TSMC and Samsung are working on commercializing 3 nanometer fabrication, an advance that would secure their lead in the industry and keep their services in high demand for years to come. A misstep by either company in this sector-leading oligopoly would likely create problems for everyone; if Samsung and TSMC are unable to meet global demand for AI chips, prices will rise and wait times will lengthen.

Still, the semiconductor supply chain is highly complex, and fabrication is only one piece of the puzzle. Japan also plays an essential role in the semiconductor supply chain, particularly as a supplier of semiconductor manufacturing equipment (SME) and of fabrication materials, such as wafers and photoresist. Japan is a major manufacturer of SME, controlling about 31 percent of global market share. For AI chips, which are produced at the 90 nanometer node or below, Japan’s Nikon is the only company besides the Netherlands’ ASML that can produce photolithography equipment (a critical type of SME) at scale.

In 2019, Japanese companies controlled 56 percent of global market share for wafers and produced about 90 percent of the global supply of photoresist. Although only around 7 percent of a chip’s added value comes from these input materials (as opposed to 34 percent for the fabrication services that a company like Samsung supplies), a shortage of these materials––whether engineered or unintentional––would still create a debilitating bottleneck in the semiconductor supply chain (see figure 2).

South Korea has been the target of an engineered bottleneck in EUV photoresist—an essential material for manufacturing cutting-edge chips using EUV lithography. In 2018, South Korea’s Supreme Court ordered Japanese companies to compensate South Korean victims of forced labor from World War II, sparking a torrent of hostility between the two countries. In July 2019, Japan imposed new restrictions on exports of two critical semiconductor materials (photoresist and hydrogen fluoride) to South Korea, delaying exports to South Korean chipmakers for several months. In the first half of 2019, around 90 percent of South Korea’s photoresist imports had come from Japan.

To minimize the economic damage, the South Korean government and domestic chipmakers sought to diversify the country’s supply of photoresist. However, South Korea is still heavily dependent on Japan for chip-making materials. In 2021, 79.5 percent of South Korea’s photoresist was still imported from Japan, and that share declined to 77.4 percent in the first seven months of 2022 (see figure 2). In the short term, South Korea’s semiconductor ambitions will likely continue to depend on a positive relationship with Japan. Still, for the most advanced semiconductors, both countries’ AI ecosystems rely in part on a stable supply from Samsung (as one of the world’s few suppliers), and Samsung in turn relies on a stable supply of photoresist (and other materials) from Japan. More broadly, global market demand for AI chips depends on South Korea’s proficiency in fabricating advanced semiconductors and Japan’s dominant role in the supplying of input materials.

Computing Power: The Cloud

While large firms can access computing power by building their own data centers, smaller firms are increasingly accessing computing power through the cloud because they lack the resources and demand to build in-house data centers. Many smaller firms build and deploy their AI systems on public cloud platforms—such as Amazon Web Services, Microsoft Azure, and Google Cloud—which allow multiple customers (companies or government entities) to share computing resources, reducing the costs for each client. As AI becomes ubiquitous and the importance of cloud computing grows, countries that supply cloud computing systems will profit from selling such services to others, and countries that adopt cloud computing systems will have access to more computational power.

All else being equal, countries that adopt cloud computing technologies more widely will likely experience disproportionately large benefits as AI diffuses throughout the global economy. The countries that are adopting cloud computing most heavily can be identified by measuring expenditures on cloud computing services. Currently, based on their similar levels of spending on cloud computing (as a share of GDP), Japan and South Korea appear to be on roughly equal footing with respect to cloud adoption (see figure 3). This suggests that Japanese and South Korean companies are likely investing substantial resources in AI readiness. To give a global perspective to these numbers, both countries outspend China as a share of GDP, but neither comes close to the United States, which is expected to spend more than 0.7 percent of GDP on cloud computing in 2021.

On the supply side, the countries that build the most globally competitive cloud computing platforms will capture a disproportionate share of cloud services sales. Global market share for public cloud infrastructure and platform services is dominated by U.S. and Chinese companies. As of 2020, the top five providers by revenue were Amazon Web Services, Microsoft, Google, Alibaba, and IBM. Notably, neither Japanese nor South Korean companies have produced a globally competitive cloud services platform. In fact, about 70 percent of South Korea’s market is controlled by foreign companies, as is around 80 percent of Japan’s market.

Still, South Korean and Japanese companies are investing similar amounts of resources in cloud computing, and both countries are outinvesting China as a share of GDP. In addition, other factors, such as government regulations, will impact companies’ ability to collect, store, and use data to develop AI systems; this topic would be a valuable subject for further study.

Cutting-Edge AI Research

South Korean and Japanese universities are also global leaders in cutting-edge AI research. Robust AI research environments signify that both countries may have a high concentration of top-notch AI talent, which local companies can draw upon. The most direct way to observe the impact of each country’s contributions to such AI research is to look at its share of citations of papers presented at academic conferences, where groundbreaking advances are often published.

Historically, South Korea’s share of citations was smaller than Japan’s, but the two countries’ performances have slowly converged since the early 2000s, with South Korea’s share surpassing Japan’s for the first time in 2019 (see figure 4). By contrast, both countries fall below China’s share of citations, and China, in turn, falls well below the United States.

The countries’ respective shares of AI conference citations per capita gives a sense of which countries are most effectively using their limited human capital to produce cutting-edge AI research. Given that Japan’s population is more than twice the size of South Korea’s, this metric shows that South Korea is punching above its weight (see figure 5). Since 2012, South Korea’s per capita share of AI conference citations has been higher than Japan’s, which suggests that South Korea’s companies and academic institutions may be gaining a leg up on their Japanese peers.

Conclusion

South Korea and Japan have developed competitive advantages in the global AI ecosystem, most notably in semiconductors; South Korea and Japan control critical nodes in the semiconductor supply chain, and South Korea is a leading fabricator of cutting-edge chips, while Japan is a leading supplier of chip-making materials. But the two countries still trail the United States and China in other AI-related metrics. With respect to cloud computing, South Korea and Japan are both outinvesting China as a share of GDP but lagging the United States. Finally, regarding cutting-edge AI research, South Korea has caught up to Japan, but both countries are far behind the United States and China.

Maintaining competitiveness in computing power and cutting-edge research is a vital endeavor for Japan and South Korea as they seek to gain an advantage in AI innovation. However, other factors such as spiraling U.S.-China economic tensions and historical animosity between Seoul and Tokyo will affect the prospects of both countries’ AI ecosystems. One looming challenge to sustaining robust AI ecosystems will be semiconductor supply chains. As technological and economic tensions escalate between Washington and Beijing, both Japan and South Korea must contend with U.S. efforts and Chinese attempts to reshore critical segments of the semiconductor supply chain. Japan and South Korea, which have historically benefitted from a network of globalized supply chains, must navigate these tensions without alienating either great power.

South Korea is not typically thought of as the front line of the fight against climate change, but the peninsula has seen its fair share of disconcerting signs of ecological distress. A special type of Korean fir tree from Jeju Island that is prized for Christmas trees has begun to disappear as warming temperatures have melted the snowfall that these trees need to thrive. On the island’s coastline, indigenous female divers called haenyeo, whose culture has been recognized by the United Nations Educational, Scientific and Cultural Organization, are concerned about their job security due to a rapidly shifting marine ecosystem. Meanwhile, unusual forest fires in North Gyeongsang Province in 2020 and 2021 devastated an area the size of more than 300 soccer fields. In August 2022, the “heaviest rainfall in eighty years” even left South Korean subway stations flooded. Until recently, most South Koreans did not perceive the climate crisis as an everyday concern. But today, it is a very different story.

While South Korea’s economic success story is well-known, the country’s ability to develop its economy in a sustainable way is becoming increasingly essential. In recent years, South Korea has sought to shed its reputation as a climate laggard and clean up its heavy-polluting economic model through concerted actions by government officials and private companies. While South Koreans have already made laudable progress, there is still more that can be done. The extent to which South Korea can optimize its green transition in the 2020s and well into the 2030s and 2050s will greatly shape its long-term economic and environmental prospects.

Cleaning Up a Dirty Economic Model

An often-overlooked aspect of South Korea’s spectacular economic rise in the latter half of the twentieth century is how deeply indebted this growth was to highly polluting heavy industry. As then South Korean president Park Chung-hee once put it, “If you can see factories [spewing] out gas, it is a sign of . . . success.” The country’s manufacturing-driven growth model traditionally has been anchored by carbon-intensive industrial titans like the steel manufacturing giant POSCO, oil refining firms like SK Energy and GS Caltex, and petrochemical producers. The era’s dominant business model was designed to deliver private profits without accounting for negative externalities including environmental degradation. For example, according to a 2002 South Korean government report, imports accounted for 97 percent of the country’s energy needs. In 2008, South Korea ranked tenth worldwide in energy consumption, fifth in crude oil imports, third in coal imports, and second in imports of liquefied natural gas. That same year, the price of a barrel of oil surged to nearly $150, and the country had to fork over more than $140 billion on energy imports.

Unsurprisingly, South Korea ranked eleventh in greenhouse gas emissions among the signatories of the UN Framework Convention on Climate Change in 2018 and seventh worldwide in annual carbon dioxide emissions in 2019. Consequently, more than 17,000 South Koreans died in 2017 due to bad air quality; the following year, the government even had to restrict the operations of coal-fired plants when the air quality grew too poor. South Korea, like most other industrialized nations, has long failed to acknowledge these negative spillover effects that appear to be pushing the planet closer to its ecological limits.

But South Korea has devoted itself to a national economic transformation of its energy use over the past decade and a half. In 2008, then president Lee Myung-bak, who formerly served as chief executive officer of the Hyundai Engineering and Construction Company, proclaimed a fundamental shift in the country’s development model focused on low-carbon industries as a way to create new growth. In 2009, the Lee administration unveiled an $85 billion plan to invest in clean energy, while committing the country to spending 2 percent of GDP on the green transition until 2013. This shift was monumental given that the South Korean economy had traditionally been driven mostly by fossil fuel–based industries.

The Lee administration also established the Framework Act on Low Carbon Green Growth, a law on targets for reducing emissions and other complementary policies such as prioritizing R&D for green technologies. It also founded the Global Green Growth Institute and convinced the UN to locate the Green Climate Fund office, mandated with supporting green transitions in developing nations, in the business hub of Songdo in Incheon, southwest of Seoul.

Despite this historic developmental paradigm shift, however, South Korea’s greenhouse gas emissions continued to rise, reaching a peak of 727.6 million tons of carbon dioxide equivalent in 2018. In 2016, after backsliding policies under then president Park Geun-hye, South Korea was named one of the world’s four “biggest climate villains” based on data from the Climate Action Tracker. The main reasons behind the national dishonor were the country’s steep levels of per capita emissions, financial backing for overseas coal-fired power plants, and abandonment of targets to reduce greenhouse gas emissions.

Trends in Green Industrial Technologies

Overall, some investments in green technology that South Korea made early on have begun to bear fruit. Several South Korean companies are leading players in various green technology markets including the growing rechargeable battery sector. In September 2021, South Korean manufacturers had a 33.8 percent share of the global market in rechargeable batteries, led by firms like LG Energy Solution (23.8 percent), SK Innovation (now referred to as SK On) (5.4 percent), and Samsung SDI (4.6 percent), making the country one of the most promising hubs in this global supply chain.

The sector’s growth potential is enormous, given that rechargeable batteries are an essential part of most green industries. In the automotive sector alone, for instance, the global market for electric vehicle (EV) batteries is projected to climb from around $19.8 billion in 2020 to $38.3 billion in 2025. In the South Korean market alone, the share of EVs in the transportation sector is expected to increase from 3.4 percent in 2020 to between 85 and 97 percent by 2050, according to the government’s recent 2050 Carbon Neutrality Scenario. Top South Korean auto manufacturers—including the Hyundai Motor Company and Kia Corporation (both part of the Hyundai Motor Group)—ranked second in EV sales globally, if the China market is excluded, according to an August 2022 Financial Times article. Although the industry has been facing a trade issue in relation to the U.S. Inflation Reduction Act, its long-term prospects are still competitive.

South Korean companies have been leaving their mark in the renewables sector too. The company Hanwha Q CELLS has held the top spot for selling solar photovoltaic modules for ten quarters in a row, obtaining a 24.8 market share in the U.S. residential market in fiscal year 2020. Meanwhile, South Korean companies like the CS Wind Corporation and Dongkuk S&C are key players in the global market for wind turbine towers, a market that is projected to grow to $30 billion by 2026. South Korea is also one of the early movers in the development of hydrogen projects, and a group of five leading South Korean firms has unveiled joint plans to invest more than $38 billion in such ventures by 2030. Some South Korean companies are already active in the development of the green hydrogen industry globally, as seen from recent deals in the United Arab Emirates and Australia.

During his term, former South Korean president Moon Jae-in strengthened South Korea’s sustainable industries through policies like the Green New Deal, which is slated to commit around $61 billion (73.4 trillion won) to green economic sectors. The policy includes benchmarks such as a goal of more than tripling power generation via solar panels and wind turbines to 42.7 gigawatts between 2019 and 2025, installing solar panels on 225,000 public buildings, and adding more than 1 million EVs and 200,000 hydrogen-powered vehicles by 2025. Digital technologies such as smart meters will be installed in 5 million additional apartments to improve energy efficiency. This trend of promoting solar and wind power is expected to (and has to) be strengthened.

Certain aspects of South Korea’s energy mix remain points of contention. One consideration is the role of nuclear energy, especially after the Moon administration’s controversial incremental plan to reduce the country’s number of active nuclear reactors from twenty-four to fourteen by 2038. Nuclear power has been acknowledged as a low-carbon energy source (as confirmed by the European Union’s taxonomy on energy sources), subject to strict safety and environmental conditions including on waste disposal. Several energy experts have argued that an increase in the share of nuclear power is absolutely necessary to achieve carbon neutrality goals by 2050, given the required time for other new technologies to become commercially feasible.

For example, although some expect the price of green hydrogen to fall by 2040, the argument is that it would be wise to use readily available technologies in the meantime given the timebound nature of the climate crisis. Countries like France, the UK, and the United States are promoting small modular reactors (SMRs) with less than 300 megawatts of power-generating capacity as part of their net zero pledges, in light of this technology’s potential for enhanced safety and security compared to that of earlier designs. In that regard, South Korean President Yoon Suk Yeol, who was inaugurated in May 2022, and his new administration plan to increase the target for nuclear power’s share to 30 percent of the country’s energy mix by 2030, compared to its current target for nationally determined contributions (NDC) of 23.9 percent by 2030, while adding nuclear energy in a revised draft of the Korean Green Taxonomy. This trend is expected to open new opportunities for South Korean firms such as Doosan Enerbility, Hyundai Engineering and Construction, Daewoo Engineering and Construction, and Korea Hydro and Nuclear Power, among others. In August 2022, the South Korean conglomerate SK Group invested $250 million in a firm, called TerraPower and founded by Bill Gates, that is developing SMRs.

Figure 1 displays South Korea’s stated commitments under the Paris Agreement, and table 1 presents the projected emissions reduction goals for several postindustrial economies.¹ Notably, South Korea’s NDC target requires a steep annual average rate of reductions in greenhouse gas emissions from the baseline year to 2030 compared to those of other major economies.

Table 1. Greenhouse Gas Emissions Reduction Goals for Major Postindustrial Economies
	Emissions per year (millions of tons of carbon dioxide equivalent) Gray boxes signify the baseline years					% of reductions (compared to the baseline year)	annual average rate of reductions (from the baseline year to 2030)
	1990	2005	2013	2018	2030 NDC
EU (27 countries)	4,846.1 (baseline)	4,540.58	3,912.50	3,770.10	2,180.80	55%	2.00%
UK	806.3 (baseline)	692.3	565.6	463.5	255.3	68%	2.80%
United States	6,453.50	7,434.8 (baseline)	6,784.50	6,687.50	3,622.00	51%	2.80%
Canada	603.2	729.7 (baseline)	720.9	729.3	419.6	42%	2.20%
Japan	1,275	1,382	1,409 (baseline)	1,248	760.2	46%	3.60%
South Korea	292.1	561.5	697.3	727.0 (baseline)	436.6	40%	4.20%

Becoming a True Climate Leader

The South Korean government has kept this momentum going to some degree with a host of other moves. In 2020, the country declared that it would seek to achieve carbon neutrality by 2050, and in 2021 the South Korean government drastically raised the ambitions of its commitments under the Paris Agreement. In April 2021, South Korea promised to “end all new financing” for overseas coal-fired power plants, according to Reuters. Seoul also released a plan to make its official development assistance (ODA) more ecofriendly, raising its share for green programs above the average of the members of the Organisation for Economic Cooperation and Development’s Development Assistance Committee and tripling “the amount of ODA loans for green projects by 2025.” This is a notable step, given that only 9 percent of the country’s current assistance was dedicated to green activities in 2018, a low figure compared to those of other actors like France (67 percent), Japan (48 percent), and the EU institutions (34 percent). South Korea hosted the Partnering for Green Growth Summit in May 2021. In August 2021, the National Assembly codified the country’s target to reach net zero emissions by 2050, just a few months after the Presidential Committee on Carbon Neutrality was established—two significant milestones.

Nonetheless, other major issues remain unresolved. Although South Korea announced its official moratorium on financing for overseas coal-burning plants, the country’s public financing still gravitates toward oil and gas (with $127 billion spent on the sector in the past ten years). South Korea ranks fourth among Group of 20 (G20) members in financial backing for fossil fuel ventures. The country should use its coffers and expertise in infrastructure development to encourage emerging economies to formulate green investment projects in renewable energy, electric transport, waste management, climate-savvy agriculture, and other sectors to help curb global greenhouse-gas emissions.

South Korea has several conglomerates that can aid in the green transition at home and abroad, such as LG Energy Solution, SK On, Samsung SDI, Hanwha Q CELLS, and others. At the same time, South Korean start-ups are also on the upswing amid the push toward net zero. This includes companies like Nearthlab (a drone inspection firm for onshore and offshore wind turbines), ENlighten (an information and communications technology platform in the renewables sector), INGINE (an onshore-type wave energy company), RE:Harvest (a food-upcycling firm developing a flour alternative from beer byproducts), and the Zikooin Company (a plant-based meat production firm). South Korea’s advanced technologies across vital supply chains can be applied in several emerging economies, as a form of climate technology transfer, accelerating their own transitions toward greener economies. This is a strategic opportunity for South Korea to lead the global transition to net zero.

Carbon neutrality is no longer a choice. South Korea has the technological potential and experience to foster a green, twenty-first-century encore to the Miracle on the Han River, both domestically and globally. Forward-looking government policies, coordination with global partners (especially emerging economies), and creative innovation led by the private sector, including start-ups, must all come together to meet this goal. That is the only way to ensure that South Korea is a leader in sustainable development and effectively mitigates the negative consequences of climate change.

Correction: This article misstated the date of South Korea's heavy rainfall. It was August 2022, not August 2020Notes

¹ The data for table 1 come from the following UN and national sources. United Nations Framework Convention on Climate Change, “Nationally Determined Contributions Registry,” 2021, https://unfccc.int/NDCREG; Organisation for Economic Co-operation and Development (OECD), “Greenhouse Gas Emissions,” 2020, https://stats.oecd.org/Index.aspx?DataSetCode=AIR_GHG; U.S. Environmental Protection Agency, “Climate Change Indicators: U.S. Greenhouse Gas Emissions,” August 1, 2022, https://www.epa.gov/climate-indicators/climate-change-indicators-us-greenhouse-gas-emissions; UK Department for Business, Energy, and Industrial Strategy, “Final UK Greenhouse Gas Emissions National Statistics: 1990 to 2020,” 2020, https://www.gov.uk/government/statistics/final-uk-greenhouse-gas-emissions-national-statistics-1990-to-2020; Government of Canada, “Greenhouse Gas Emissions,” 2020, https://www.canada.ca/en/environment-climate-change/services/environmental-indicators/greenhouse-gas-emissions.html; Japanese National Institute for Environmental Studies, “The GHG Emissions Data of Japan,” 2020, https://www.nies.go.jp/gio/en/archive/ghgdata/index.html; South Korean Greenhouse Gas Information Center, “Announcement of National Greenhouse Gas Inventory for 2021 (1990–2019), 2019, http://www.gir.go.kr/home/board/read.do?pagerOffset=0&maxPageItems=10&maxIndexPages=10&searchKey=&searchValue=&menuId=36&boardId=54&boardMasterId=2&boardCategoryId=; and South Korean Presidential Committee of Carbon Neutrality, “2050 Carbon Neutral Scenario (Summary, Full Version Second Plentary Meeting Deliberation and Resolution,” October 18, 2021, https://www.2050cnc.go.kr/base/board/read?boardManagementNo=4&boardNo=101&searchCategory=&page=1&searchType=&searchWord=&menuLevel=2&menuNo=15.

On May 10, 2022, Yoon Suk Yeol of the People Power Party became the Republic of Korea’s (ROK) next president. He won South Korea’s March 2022 presidential election by a margin of just 247,000 votes over Lee Jae-myung of the Democratic Party, the country’s closest election since democracy was restored in 1987. Yoon faces formidable challenges even though the People Power Party outperformed the Democratic Party in the critical June 2022 local elections. (The conservatives secured twelve out of seventeen gubernatorial and mayoral seats in another resounding defeat of the Democratic Party right after besting the rival party in the all-important presidential contest.) The key political problem for Yoon is that the opposition currently holds a majority in the National Assembly (169 seats to the People Power Party’s 115) and is determined to stymie Yoon’s legislative programs. However, until the next general election in April 2024, Yoon has no choice but to work with an increasingly intransigent opposition.

Although Yoon had a successful summit with U.S. President Joe Biden less than two weeks after the former’s May 2022 inauguration, followed by the South Korean president’s first international foray at the NATO summit in Madrid at the end of June, Yoon faces enormous headwinds. The government, but especially the National Police Agency, has been heavily criticized for the tragic deaths of over 150 people, including a number of foreign nationals, due to a crowd surge and stampede in the Itaewon district in Seoul on October 29, 2022. Multiple investigations are underway. Yoon also faces critical challenges stemming from weakened economic prospects in the face of surging inflation, unprecedented provocations by North Korea through a constant barrage of ballistic missile launches, and a deeply divided National Assembly.

To be sure, it’s far too early to forecast what Yoon will or will not achieve in his five-year term, and he shouldn’t be swayed by public opinion polls. But if a business-as-usual mentality persists in the president’s office, his ability to govern effectively will suffer, with key repercussions for the April 2024 National Assembly election. The stakes could not be higher for Yoon and South Korea. Politically, he must show why his policies will result in substantive results compared to the populism of his predecessor, Moon Jae-in (2017–2022). Although Yoon’s economic performance over the next few years is paramount, the need to transform South Korea into a major player in the Western bloc is pressing too.

On top of the urgent task of tackling high inflation and much slower growth, Yoon faces three additional major tasks. First, North Korea’s accelerating nuclear capabilities require a fundamental reassessment of South Korea’s defense requirements and strategies in addition to a revamping of the country’s intelligence community to handle China’s growing shadows over the Korean Peninsula. Second, rapid demographic shifts, such as a declining population for one of the world’s fastest-aging societies coupled with anemic economic growth and rising social welfare costs, will entail unprecedented budgetary pressures. And third, Yoon must grapple with critical foreign policy and national security challenges including supply chain realignments following the global pandemic, the ongoing war in Ukraine, and (most importantly for South Korea) worsening U.S.-China tension. If China attacks Taiwan or implements a naval blockade, South Korea will be pressured by the United States to provide some type of tangible military assistance. Simultaneously, China will do everything possible to dissuade South Korea from doing so. Each of these challenges calls for tailored responses with contrasting political requirements given the depth of political divisiveness across the South Korean political landscape.

What Yoon really needs to do is bolster South Korea’s global competitiveness by forging the country into a much stronger, more proactive member of the Western bloc. He can do so by helping build a democratic alliance with the United States and other key technologically advanced allies and partners including Australia, Japan, and the members of the EU. In this spirit, the Yoon administration should stress three key points: making South Korea a bona fide member of the broader Western intelligence community; laying the groundwork for more tangible security and defense cooperation with the EU and NATO; and upgrading trilateral security cooperation with the United States and Japan. Yoon supports South Korea’s entry into Washington’s Indo-Pacific Economic Framework—the new regional economic cooperation proposal spearheaded by the United States—as shown during his first summit meeting with Biden. South Korea has said that it will join Biden’s Chip 4 Alliance—a partnership with the United States, Japan, and Taiwan focused on the semiconductor supply chain. While Seoul will align with Washington on critical technology supply chain issues, it also has to prepare for wide-ranging repercussions including growing pressures from China as U.S.-China tech decoupling and competition worsen.

Responding to a Shifting Threat Landscape

Between January and October 2022, North Korea conducted over 40 missile tests including an intermediate-range ballistic missile (IBM) over Japan on October 4—the first time in several years. Earlier, in mid-April, North Korea announced that it has successfully tested a new tactical nuclear-capable ballistic missile, a claim that the South Korean military seemed to confirm soon after. On May 12, just two days after Yoon was inaugurated, North Korea fired three short-range ballistic missiles. Unlike under the Moon administration, when National Security Council officials downplayed North Korea’s missile tests, calling one of them an “unidentified projectile,” Yoon’s National Security Council staff strongly condemned North Korean missile tests. Yoon stated in October 2022 that “if North Korea uses nuclear weapons, they will face our forces’ resolute and unsurpassed response together with our American ally” (author’s translation).

Importantly, the evolving threat posed by a nuclearized North Korea is compounded by the Chinese military’s growing capabilities. For the first time, the People’s Liberation Army can contest U.S. military supremacy in the Western Pacific, partially deny American reinforcement capabilities, and counter South Korea’s responses to North Korean provocations. Meanwhile, although the war in Ukraine is not likely to result in a fundamental resetting of South Korea’s security priorities, it will trigger key adjustments. Building more resilient national security supply chains, enhancing intelligence sharing and cooperation with allies and partners, shoring up critical defenses for maritime chokepoints like the Malacca Strait and the Taiwan Strait, and emphasizing value-based multilateral diplomacy are all areas where the Western bloc (especially technologically advanced democracies) have advantages.

On the campaign trail, Yoon stated that South Korea should play a more active part in the various working groups of the Quad, the security-focused grouping that includes Australia, India, Japan, and the United States. And although the Five Eyes intelligence-sharing arrangement is limited to the original members—Australia, Canada, New Zealand, the UK, and the United States—it would significantly bolster South Korea’s global intelligence footprint if it strengthened collaboration with these countries. But as the front-line state facing North Korea, the only U.S. ally that houses U.S. troops on the Asian continent, and one of the world’s leading high-tech economies, South Korea can make significant intelligence and defense technology contributions. The impetus for strengthening the defenses of the strategically vital European and Asian theaters falls on the shoulders of the NATO alliance in Europe and critical U.S. allies in Asia including South Korea and Japan.

Despite the urgency and gravity of the growing threats of North Korea’s nuclear missiles and weapons of mass destruction, it’s also true that South Korea confronts a different security outlook compared to just a decade ago. The cumulative impact of accelerating climate change, mounting cyber attacks, vulnerable supply chains, and the spillover effects of game-changing technologies like artificial intelligence (AI) are going to grow exponentially in tandem with worsening with traditional security threats. In all these areas, South Korea can’t do it alone. It must pool resources, strategies, and policies with key global partners.

As for the U.S. commitment to South Korea’s defense, the May 2022 joint statement noted that “President Biden affirms the U.S. extended deterrence commitment to the ROK using the full range of U.S. defense capabilities, including nuclear, conventional, and missile defense capabilities.” It also stated that the two allies agreed to “further strengthen deterrence by reinforcing combined defense posture” and to “initiate discussions to expand the scope and scale of combined military exercises and training,” while the United States also reiterated that it would “deploy strategic U.S. military assets in a timely and coordinated manner as necessary . . . to reinforce deterrence in the face of [North Korea’s] destabilizing activities.”

This was among the strongest affirmations of Washington’s commitment to South Korean defense since the end of the Cold War. But South Korea must also contemplate the possibility of former president Donald Trump’s return to the White House in 2024 or the emergence of another American president with similar worldviews, who may contest U.S. commitments to key allies, threaten to withdraw U.S. forces from South Korea, and perceive U.S.-ROK military exercises as threatening to North Korea. In more ways than one, Trump did more damage to the U.S.-ROK alliance than any other U.S. president. While Seoul (and other key U.S. allies) have recovered from the repercussions of his presidency, these developments also planted deeply rooted uncertainty about the long-term credibility of U.S. extended deterrence just when North Korea’s nuclear threat begins to grow exponentially.

Modernizing South Korea’s Approach to National Security

Economic security and technological issues are garnering more attention as countries continue to weather the coronavirus pandemic and seek to enhance their national resilience. Like other advanced economies, South Korea is just starting to digest the growing importance of high-tech innovation for national security. These ripple effects extend to the country’s national security apparatus and intelligence-gathering capabilities.

The convergence of geopolitics, geoeconomics, and technological innovation necessitates a different approach to national security policy planning with greater attention to the growing role of the private sector. In November 2021, for instance, Samsung announced a $17 billion investment in Texas to build a semiconductor factory—the firm’s single largest investment in the United States. General Motors unveiled a partnership with LG in January 2022 to build a new battery plant for $2.6 billion. Without the active participation of South Korean technology firms, Seoul’s ability to help build more resilient post-pandemic global supply chains could falter. The Yoon government should significantly bolster its support for South Korean investment in the United States and strive to ensure that South Korea plays a role in creating new supply chains in strategic industries such as space, biotechnology, and AI.

These shifts have institutional implications as well. While South Korea’s national security apparatus has been modified since the end of the Cold War and every single South Korean government since 1987 has emphasized defense reforms, the country’s overarching national security, defense, and intelligence structures have remained largely intact. Some improvements have been made, such as the creation of the Defense Acquisition Program Administration in 2006 and the establishment of the Korea Research Institute for Defense Technology Planning and Advancement in 2021. Even so, South Korea has to strive to exploit new opportunities driven by AI technologies, keep abreast of the growing prevalence of open-source intelligence and widening intelligence sharing across the national security domain, and significantly boost its foreign intelligence capabilities.

If South Korea misses this chance to rethink its national security paradigm, the long-term opportunity costs are likely to be significant. On the defense front, the Yoon administration must emphasize a South Korean offset strategy or countervailing capabilities in response to North Korea’s expanding nuclear arsenal and missile assets. While it makes imminent sense to strengthen the U.S.-ROK alliance for the reasons noted above, it is also crucial for South Korea to bolster its own strike capabilities against North Korea’s growing nuclear and conventional arsenals. North Korea’s nuclear arsenal continues to grow—as the South Korean joint chiefs of staff noted in October 2022, by 2027 North Korea could have more than 200 nuclear warheads—so the ROK must develop its own strategic capabilities to counter North Korea’s growing nuclear threat.

Meanwhile, the war in Ukraine has reinforced the importance of real-time, cross-domain intelligence gathering, which will become even more relevant as security dynamics in East Asia worsen. Washington continues to provide critical strategic intelligence to Seoul, and bilateral intelligence cooperation is likely to deepen during the Yoon administration. As South Korea prepares to eventually assume conditions-based full operational control of its military forces, however, one major area that it is seeking to augment is its intelligence, surveillance, and reconnaissance capabilities. In a blueprint published by the South Korean Ministry of National Defense in December 2021, ministry officials stressed the importance of bolstering the country’s defense posture with AI, big data, and cloud computing capabilities and engaging in more robust intelligence sharing.

But it is equally important to facilitate a greater flow of information among key intelligence agencies; national security bodies; and various ministries with portfolios related to economics, commerce, and science and technology. Overcoming built-in bureaucratic resistance to deeper and wider private-sector engagement and significantly improving the qualitative output of government-run think tanks remain essential tasks if South Korea wants to retain an information edge. As the war in Ukraine continues to demonstrate, private-sector intelligence, surveillance, and reconnaissance firms are playing outsized roles in providing real-time intelligence and situation updates to Ukrainian forces.

Although there will be intense institutional resistance, South Korea could also consider creating an office of the director of national intelligence akin to the United States and Australia. Such a move would foster greater institutional cooperation between various intelligence agencies and to the extent possible, strengthen government and private sector information cooperation. As South Korea faces wide-ranging and deepening intelligence challenges, putting into place key structural reforms today will enable it to better meet over-the-horizon national security threats. And serious thought must also be given to whether it is time to create a dedicated intelligence organization that focuses exclusively on foreign economic and technology intelligence. 

Becoming an Essential Global Player

As one of the world’s leading trading powers and the tenth-largest economy ($1.6 trillion in 2020), South Korea’s economic prowess is well-established, and its soft power profile is also growing. But a key condition for boosting the country’s global competitiveness, mitigating the fallout of worsening U.S.-China relations, and revitalizing the U.S.-ROK alliance for the twenty-first century is redrawing Seoul’s national security framework and strategies.

South Korea stands at a crossroads. If inertia once again wins out, Seoul will have a harder time building up its core defense, technological, and intelligence capabilities over the next decade. Boosting South Korea’s capabilities and strategies in these core areas will not result in headline-grabbing achievements. But these efforts are likely to have outsized influence in shaping South Korea’s place in the emerging constellation of regional powers, particularly with regard to how the West perceives South Korea as a critical partner. Alongside other regional actors like Australia and Japan, South Korea is on the cusp of contributing much more tangibly to common security and defense.

While the Moon administration opted not to provide lethal military assistance to Ukraine, the Yoon administration should reflect deeply on the opportunity costs if Seoul continues to provide only humanitarian assistance. The circumstances today are very different from those of the past, but if the international community only chose to provide Seoul with nonlethal assistance when the Korean War broke out in 1950, South Korea’s own trajectory, the status of the U.S.-ROK alliance, and the postwar Asian security order would have been profoundly different. Becoming a more responsible member of the international community was a major theme Yoon stressed in his inauguration speech. It is time to show that South Korea can match this rhetoric with corresponding action.