Diplomacy Journal reporter Lee Gilju | The strategic competition between the United States and China has entered a new phase. What began as a trade war defined by tariffs has evolved into a far more consequential contest over financial access, technological standards, and systemic control.

The end of the tariff era

Washington’s current focus is no longer on penalising Chinese exports through customs duties, but on restricting China’s participation in the core mechanisms of global capitalism.
Investment screening, limits on outbound capital, restrictions on advanced semiconductor and AI technologies, and tighter controls over financial linkages now form the backbone of U.S. strategy.

This marks a decisive shift: the objective is not to make Chinese products more expensive, but to constrain the operating space of Chinese firms within the global system itself.

Financial power as strategic leverage

Unlike tariffs, financial and technological controls are asymmetric tools.
The U.S. retains decisive influence over global payment systems, investment norms, and regulatory standards. By redefining who may access capital, technology, and markets, Washington is reshaping the rules of participation rather than merely enforcing them.

For Beijing, this represents a structural challenge rather than a cyclical one.
The contest is no longer about growth rates or trade balances, but about systemic inclusion versus exclusion.

Trilateral alignment: from security to supply chains

Against this backdrop, cooperation among South Korea, the United States, and Japan is undergoing a parallel transformation.

What was once a security-driven alignment—focused primarily on North Korea and military deterrence—is increasingly defined by economic security and supply chain coordination.
Semiconductors, batteries, critical minerals, and artificial intelligence have become central pillars of trilateral cooperation.

In practice, this amounts to the emergence of a functional supply chain bloc, where industrial policy and national security are no longer separable.

Why this matters now

The acceleration of this shift reflects hard-earned lessons:

• Overdependence on single-country supply chains has proven strategically risky.

• Geopolitical disruptions—from wars to sanctions—are no longer exceptional events.

• Advanced manufacturing capacity is increasingly treated as a strategic asset.

In this environment, chip fabrication plants are no longer merely industrial infrastructure; they are components of national security architecture.

South Korea’s strategic dilemma

South Korea stands at the centre of this transformation—and faces its most acute dilemmas.

China remains Seoul’s largest trading partner.
The United States, however, anchors South Korea’s security, financial integration, and technological future.

Participation in U.S.–Japan–Korea supply chain frameworks offers stability, technological access, and political alignment—but also heightens exposure to Chinese retaliation and market risk.
Neutrality, once a viable posture, is becoming increasingly untenable.

A new role for diplomacy

As a result, diplomacy itself is being redefined.
Foreign policy is no longer confined to summits and communiqués; it now directly shapes industrial competitiveness, investment flows, and employment outcomes.

Failures of coordination can translate rapidly into supply disruptions or lost technological ground. Success, by contrast, requires unprecedented integration between diplomatic, economic, and technological policymaking.

A systemic turning point

Taken together, the deepening U.S.–China rivalry and the economic securitisation of the U.S.–Japan–Korea partnership are not isolated trends. They are components of a broader structural shift in the Indo-Pacific order.

Tariffs have faded. Systems have taken their place.
For middle powers like South Korea, the challenge is no longer choosing sides—but designing strategies that function within an increasingly fragmented global system.