The risks are high for South Korea to just ignore or take sides in the yearlong trade war between the US and China, with the country vulnerable to changes in economic, diplomatic and security ties with the two global powers.

Seoul was alarmed by Washington’s recent hard-hitting remarks that called for other countries to join its boycott equipment of Chinese telecom giant Huawei Technologies, amid mounting concerns over the trade conflict’s negative impact on its export-dependent economy.

The US asserts that Huawei equipment could be used to aid Chinese espionage or sabotage in countries including Korea, as the company is moving to expand its foothold in the next-generation 5G wireless network landscape.

The Shenzhen-based company, caught between the world’s two largest economies in an escalating trade and technology war, has faced setbacks in its global business this year.

The US government has blacklisted almost all of Huawei’s business in the country. It is ramping up efforts to persuade allies to do the same, saying the company’s close ties with the Chinese government pose fundamental threats to national security.

Korean mobile carrier LG Uplus, a subsidiary of LG Group, is the only local company using Huawei equipment for the 5G network. Other carriers SK Telecom and KT decided to work with Samsung Electronics, Finland-based Nokia and Sweden-based Ericsson as their equipment suppliers last year.

Countries that buy Chinese network equipment and host US military bases concern US authorities the most. The country routinely exchanges information on military and security issues with its close ally South Korea, where approximately 28,500 troops are currently stationed.

Although internet traffic for sensitive communication at military installations goes through a network separate from commercial ones, the US has raised concerns that 5G networks could jam military communications and radar operations.


‘Make the right decision, Seoul’

Envoys of the US and China here are busy pushing their respective government’s position.

During a meeting with National Security Office chief Chung Eui-yong on June 7, US Ambassador to South Korea Harry Harris reportedly stressed the importance of a “good communication channel” between Seoul and Washington.

He said the US government would eschew sharing sensitive information if Korea decides not to ditch the use of Huawei’s equipment for the country’s network services.

Harris’ message to the public, made through a speech and media interview, was clear.

“Choosing a trusted supplier makes security and financial sense,” Harris said in a conference hosted by Facebook Korea on June 5.

Facebook has severed ties with Huawei, announcing it would no longer allow its apps to be preinstalled on the company’s handsets.

“As US Secretary of State Mike Pompeo explained, ‘The world wants systems they can trust.’ And while short-term cost savings may be tempting, the long-term risks and mitigation costs that come with untrustworthy suppliers are very real and large,” Harris said.

In a recent interview with Chosun Ilbo, the ambassador refuted comments by a Cheong Wa Dae official, who had downplayed the possibility that the 5G network using Huawai equipment could jam military communications.

Meanwhile, a Chinese Foreign Ministry official urged Seoul to “make the right decision,” in a meeting with a group of Korean reporters on May 28.

“The Korean government and companies should determine what’s right and wrong, not just following what the United States wants,” the official said.

Beijing allegedly warned Korean companies such as Samsung Electronics and SK hynix of possible retaliation if they joined Washington’s sanctions on Huawei.


Flashback to THAAD nightmare

Korea has bitter experience in mishandling a spat between the two superpowers.

After Seoul’s decision to deploy the US THAAD missile defense system in 2016 to counter North Korea, China informally banned group tours to Korea and suspended retail giant Lotte’s construction projects.

Mounting tension between the world’s top two economic powers has created fear among those who witnessed Chinese authorities’ suspension of operations at more than half of Lotte stores in China for alleged fire safety violations, after the company agreed in 2017 to sell the Korean government land for deployment of the THAAD system.

In the aftermath of Beijing’s retaliation over the deployment, Seoul has been seeking to diversify its markets but the neighboring country still accounts for some 24 percent of total exports.

“Korean enterprises operating in China are deeply concerned about the situation,” Je Hyun-jung, director at the Korea International Trade Association, told The Korea Herald.

However, she said the government making a choice between the US and China may not benefit companies.

“Standing by one side could bring about another situation like the THAAD crisis. That won’t help anyone,” Je said.

Substantive policy support for businesses, such as fiscal incentives for those who decide to move plants back to Korea or helping companies make inroads into new markets, would be more practical in mitigating adverse effects.

According to a report by KITA, the prolonged US-China trade conflict is expected to adversely impact Korea’s exports due to slow investments and consumption, financial instability as well as intensified competition in ASEAN markets in the event China increases reliance on the regional bloc for exports.



No immediate or obvious remedy

Seoul has maintained what has been called “strategic ambiguity” in juggling US-China relations, with a low-key position on the dispute.

Following Prime Minister Lee Nak-yeon’s instructions to create a team to deal with Korea, US and China relations, the Ministry of Foreign Affairs last week announced a plan to launch a seven-member task force.

The ministry said it would seek a way that would “respect corporate autonomy” and would not impact the security of military communications.

“The government will discuss national security concerns over the use of Huawei’s equipment with related countries if necessary,” a ministry official said on the condition of anonymity.

On Tuesday, Korea’s video surveillance solution maker Hanwha Techwin said it would reduce the volume of system semiconductors, a part of its IP cameras, that were to be supplied by Huawei’s subsidiary HiSilicon, marking the first Korean firm to officially weaken partnership with the Chinese company.

The government needs to exercise prudence in deciding on possible restrictions on Huawei equipment, as no flaws that would affect national security have been found in the products yet, experts said. While minimizing intervention, the government should map out countermeasures for possible scenarios down the road, they added.

“Unlike other countries that depend on alternative markets, Korea is heavily reliant on the two countries. It’s not a game where you can say security takes precedence or the economy takes precedence,” said Kim Heung-kyu, a professor at Ajou University.

Kim Han-kwon, a professor at the Korea National Diplomatic Academy, said it would be difficult for Washington to raise issues if Seoul responds according to the principles of free market and free trade -- notions that the US propagates to the world.

“The US will find itself mired in contradiction if the government exerts pressure on private companies to control what they do, like China does, which the US criticizes as state capitalism,” Kim said.

By Park Han-na (hnpark@heraldcorp.com)