Between the US and China... 'Uncertain' Korean Companies

Heightened Tensions in Bilateral Trade Disputes
Direct Impact on Export Sectors like Automobiles and Petrochemicals
Concerns Over Declining Semiconductor Freight Demand

[Image source=Yonhap News]

[Asia Economy Reporters Hyewon Kim and Jehun Yoo] "There is more fixed demand for semiconductor cargo with China than expected. It's already difficult due to the novel coronavirus disease (COVID-19) crisis, and we are worried that semiconductor cargo demand might decrease further because of the US-China trade dispute."

As the US-China trade dispute intensifies day by day, the industrial sector, which is struggling to overcome the COVID-19 crisis, has collectively fallen into a state of 'mental breakdown.' Samsung Electronics and SK Hynix, caught directly in the crossfire of the dispute following the US government's strengthened sanctions on China's Huawei, are holding on with a precarious balancing act. There are growing concerns that if the conflict between the US and China escalates, export-dependent industries such as airlines?already pushed to the brink by COVID-19?along with automotive, machinery, steel, and petrochemical sectors will be hit hard by sluggish local demand.

An airline industry official said, "No one knows how the US-China trade dispute will unfold, but it will have a negative impact in some form. The recently increased demand for semiconductor cargo could be directly affected, but currently, due to efforts to manage COVID-19, there is no capacity to devise countermeasures related to the US-China trade dispute," conveying the atmosphere.

In both the first and second rounds of the US-China trade dispute, the domestic semiconductor industry, caught in the eye of the storm, is trying its best not to upset either government. For Korean semiconductor companies, the US sanctions on Huawei and the US-China conflict are like a double-edged sword.

A semiconductor industry insider said, "If the US cuts off transactions with top Chinese companies, Korean foundry companies like Samsung Electronics could gain a side benefit, and since the export route of our memory semiconductors to Huawei has not yet been blocked, there are signs of efforts to purchase at maximum levels and build up inventory." If Huawei loses market share in the smartphone sector, domestic companies like Samsung Electronics could replace that position, so they are on high alert.

Another business official pointed out, "However, this is only a partial outlook. If the US expands the scope of sanctions to all companies dealing with Huawei, our companies could also suffer damage. Overall, if the rift between the US and China deepens, global trade will contract, negatively impacting our export-dependent companies and economy." The petrochemical industry is a representative example. Although it varies by product, many items have over 80% of their exports going to China, and the industry's downturn is expected to last longer.

The US attempt to steer the global value chain (GVC) restructuring triggered by COVID-19 toward 'de-Chinafication' is also an uncomfortable factor for our industry. If Korea appears to be cooperating with the US government, it may have to endure economic retaliation from China beyond what was experienced with the deployment of the Terminal High Altitude Area Defense (THAAD) system.

An official from the Korea International Trade Association's Trade Support Center said, "Industries exporting 'Made in China' products with production bases in China to the US are all within the scope of concern," adding, "Although this atmosphere has been entrenched for one to two years, overlapping with COVID-19 and criticism of US President Donald Trump, from his perspective, it is a kind of exit strategy to carry the US-China trade dispute issue through to the November election."

This content was produced with the assistance of AI translation services.