[New Economic Security Landscape] IPEF Participation Confirmed... Starting with Semiconductor Supply Chain Adjustments

Shifting Economic Security Landscape①
US-Led Technology and Supply Chain Cooperation Expected to Accelerate
Growing Optimism Among Domestic Semiconductor Companies
China-Containment 'Semiconductor Four-Nation Alliance' Likely to Launch Soon

[Image source=Yonhap News]

[Asia Economy Reporters Sunmi Park and Jinho Kim] With the South Korean government deciding to participate in the U.S.-led Indo-Pacific Economic Framework (IPEF), the reorganization of the semiconductor supply chain is expected to accelerate. In particular, advanced countries in the Indo-Pacific region such as South Korea, the United States, and Taiwan are playing a central role in building supply chains centered on semiconductors, and the movement to reshape the semiconductor industry landscape around IPEF member countries is anticipated to gain momentum.

◆ IPEF Launched Amid Semiconductor Supply Shortage Era = IPEF was launched at a time when the global shortage of semiconductors has made building semiconductor supply chains crucial. Just before the launch of IPEF, U.S. President Joe Biden visited South Korea and made his first stop at a Samsung semiconductor factory, repeatedly emphasizing that the two countries could achieve economic security cooperation through a technological alliance. This underscores the expectation that semiconductor supply chain cooperation will be a key agenda item going forward.

According to political and business circles on the 23rd, South Korea officially confirmed its participation in the U.S.-led IPEF, which was launched that day. President Yoon Suk-yeol will attend the IPEF high-level virtual meeting held that afternoon. IPEF is a multilateral consultative body for discussions on global supply chains including semiconductors, digital economy, decarbonization, and clean energy. It is also interpreted as a U.S. strategy to counter China. South Korea joined as a founding member alongside the United States, Japan, and Australia, with New Zealand, Singapore, Malaysia, Indonesia, Vietnam, and the Philippines expected to participate.

IPEF is still in its early stages without concrete agendas or implementation plans. However, given that the U.S.-South Korea alliance centered on security was elevated to a "technology and supply chain alliance" through the recent summit, it is analyzed that U.S.-led "technology and supply chain cooperation" will be a major agenda.

President Biden’s visit to Samsung Electronics’ semiconductor factory on the 20th as his first schedule in South Korea adds weight to this analysis. Biden highlighted Samsung’s investment in the U.S. as playing a significant role in reorganizing the U.S.-centered semiconductor supply chain, signaling the firm technological alliance between the two countries to both domestic and international audiences.

The U.S.-centered semiconductor supply chain reorganization is expected to bring considerable synergy effects for South Korea. First, through technological cooperation with the U.S., which has strengths in semiconductor design, South Korean semiconductor companies are expected to have an opportunity to evolve further. In particular, there is speculation that South Korean semiconductor companies will be nurtured to reduce dependence on Taiwan’s TSMC, which is experiencing geopolitical conflicts with China.

Additional benefits from the U.S. for South Korean semiconductor companies, such as corporate tax reductions or support for mergers and acquisitions (M&A), are also anticipated. There is a high possibility of additional incentives for Samsung Electronics’ semiconductor factory in the U.S., which is scheduled to break ground next month with an investment of 20 trillion won.

◆ Semiconductor Alliance at the Core of IPEF = According to statistics on semiconductor process stage and regional shares provided by the Korea International Trade Association, major Indo-Pacific countries are already playing key roles in the semiconductor industry supply chain.

In the system semiconductor sector, the United States (65.1%), Taiwan (15.1%), and South Korea (5.1%) hold dominant positions. In the memory sector, South Korea (56.7%), the United States (28.3%), and Japan (8.6%) lead. For manufacturing equipment, the U.S. (38.9%), Japan (23.2%), and the Netherlands (18.3%) have the upper hand, while wafer production capacity is led by Taiwan (21.4%), South Korea (20.4%), and Japan (15.8%). Although China is striving to rise in the semiconductor industry backed by massive capital and policy support, it remains in a challenging position. China only exerts influence in the post-processing (testing, packaging) sector with a 21% share, following Taiwan’s 52%, and ahead of the U.S.’s 15%, but lags behind in most areas such as system semiconductors, memory, and manufacturing equipment.

Industry experts believe that with the strengthened supply chain cohesion through IPEF participation by the U.S., which holds advantages in semiconductor design and all processes, South Korea, which excels in memory semiconductor design and production, and Japan, strong in manufacturing equipment, China’s semiconductor ambitions can be checked. ASEAN countries and India lack significant semiconductor technology but play a vital role as demand markets due to active assembly and production of various electronic products and devices and large populations. This supports the interpretation that the U.S. is determined to exclude China from core industrial supply chains such as semiconductors through IPEF.

There is also speculation that the "Chip 4 Alliance" (South Korea, the U.S., Taiwan, Japan), proposed to counter China, will soon become visible through IPEF participation. The Korea Institute for Industrial Economics and Trade recently stated in a report, "From 2025 onwards, a global semiconductor supply chain reorganization centered on the U.S. is expected," and recommended, "To establish itself as a central country in the reorganized global supply chain, it is necessary to positively consider participation in the U.S.-led Chip 4 Alliance."

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