[In-Depth Review] Global Semiconductor Supply Chain Restructuring and Our Choices

Kyung-Yeop Jo, Director of Economic Research Office, Korea Economic Research Institute

Under the Biden administration, the U.S. national strategy to exclude China from the global supply chain has become more sophisticated and tougher than during the Trump administration. Within the first 100 days of his presidency, Biden signed a total of 38 executive orders including 'Buy America,' 'domestic supply chain improvement,' and 'climate change response.' In his first congressional address after taking office, he called on Congress to pass a massive budget exceeding $4 trillion, emphasizing the need for large-scale investment to win the all-out competition with China. Including the $2.3 trillion stimulus package, the scale of fiscal input is beyond imagination.

These series of measures are interpreted as a strong determination to reorganize the global supply chain for fourth industrial revolution technologies such as advanced batteries and semiconductors centered on the U.S. Global companies hesitant to invest domestically due to concerns about higher production costs compared to China are being promised massive government support, leading Samsung Electronics and Taiwan's TSMC to announce large-scale investment plans in the U.S. This is likely because they judge that riding the wave of the U.S. semiconductor supply chain reorganization will be beneficial.

China is confident that it can dominate all industries due to its massive domestic market. This confidence can be seen in the 'Made in China 2025' plan, which aims to raise the localization rate of all core components to 70% by 2025 and become a manufacturing powerhouse. China's ambitions have triggered the U.S.-China hegemonic war as they manifest in unfair practices such as subsidies to domestic companies, forced technology transfers from foreign companies, intellectual property rights violations, cyber theft, and mergers and acquisitions (M&A) through price collusion.

The U.S. has designated technology theft led by the Chinese government as a threat to the global economy and adopted a policy of cooperating with allies to contain China as a national strategy. As more allies join the U.S. national strategy, China's sense of crisis is intensifying. At the Boao Forum, President Xi Jinping strongly criticized the U.S. efforts to reorganize the global supply chain but lowered his tone by stating, "China will never seek hegemony."

China's industry will significantly regress with semiconductor regulations alone, as semiconductors are core components of all products including mobile phones, automobiles, and home appliances. China is pursuing semiconductor self-reliance through technological innovation in response to semiconductor regulations, but the feasibility is currently very low. In the global semiconductor supply chain, China mainly handles low value-added back-end processes such as assembly, packaging, and testing that do not require advanced technology.

Even these processes are being relocated to regions with lower wage levels such as Vietnam. Over 70% of semiconductor design and logic, which are R&D-intensive and require advanced technology, are specialized in the U.S. Production of memory and non-memory semiconductors, which require large-scale facility investments, is almost monopolized by South Korea and Taiwan. China's share is only about 15%, and it is concentrated on semiconductor production of 28nm and below. Japan and Europe dominate the essential parts, materials, and equipment required in the semiconductor manufacturing process.

It is impossible for us to form a complete semiconductor supply chain by partnering with China. On the other hand, if we fail to participate in the U.S.-led semiconductor supply chain, we are likely to lose even the monopolistic position we enjoy in memory semiconductors. Unfortunately, it is becoming increasingly difficult to gain advantages through strategic ambiguity between the U.S. and China. A wise choice is needed at this point.

Kyung-Yeop Cho, Head of Economic Research Division, Korea Economic Research Institute

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