US or China... Yoon Administration Caught in the 'Semiconductor Dilemma'

Government Begins Full Review of 'Chip4'... US-Led Semiconductor Alliance
Composed of Four Countries Including Japan and Taiwan... Strongly Aimed at Containing China
Government Concerned About Chinese Backlash... Korea Accounts for 40% of Semiconductor Exports
Potential Korea-China Trade Friction... Semiconductor Impact Unavoidable

South Korean and U.S. Leaders Inspect Samsung Semiconductor Factory
(Pyeongtaek=Yonhap News) Reporter Ahn Jung-won = U.S. President Joe Biden, visiting Korea for the first time since taking office, visited Samsung Electronics' semiconductor factory in Pyeongtaek, Gyeonggi Province, on the afternoon of May 20, 2022, and toured the factory guided by Vice Chairman Lee Jae-yong. 2022.5.20
jeong@yna.co.kr
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[Asia Economy Sejong=Reporter Lee Jun-hyung] The core of the US-led ‘Chip4’ is to contain China. Chip4 is a semiconductor alliance consisting of four countries: the United States, South Korea, Japan, and Taiwan. It reflects the US intention to reorganize the global semiconductor supply chain centered on allied countries to curb China’s ‘technological rise.’ This is why the US chose South Korea, strong in memory semiconductors, Taiwan, the strongest in non-memory semiconductors, and Japan, which has world-class competitiveness in materials, parts, and equipment (MPE) sectors, as Chip4 allies.

The problem is that joining Chip4 could directly provoke China’s backlash. China has already issued warnings about South Korea’s joining Chip4 through the Communist Party’s official newspaper. Additionally, the government recently joined the US-led Indo-Pacific Economic Framework (IPEF) as a founding member, showing caution toward China. IPEF is an economic cooperation body in the Indo-Pacific region, conceived by the US to counter the China-led Regional Comprehensive Economic Partnership (RCEP).

Therefore, the government is repeatedly deliberating over joining Chip4. The possibility of China’s backlash leading to economic retaliation similar to the THAAD incident cannot be ruled out. In particular, China is the largest market for Korean semiconductor exports, accounting for about 40%. Also, semiconductor exports accounted for about 31% of last year’s exports to China ($162.9 billion), totaling $50.2 billion. If trade friction between Korea and China arises, the Korean semiconductor industry will inevitably suffer immediate damage.

Samsung Electronics and SK Hynix also have key production bases in China. Samsung Electronics produces about 40% of its total NAND flash at its NAND flash factory located in Xi’an, China. SK Hynix manufactures about 50% of its total DRAM at its DRAM factory in Wuxi, China.

However, there are concerns that if South Korea does not join Chip4, it could be excluded from the supply chain reorganization led by the US. This is because the US is accelerating ‘friend-shoring,’ rebuilding supply chains centered on allied countries not only in semiconductors but across all industries. If the US, a powerhouse in semiconductor core technologies, tightens control over its technologies, domestic companies’ semiconductor production could face disruptions.

There is also a view that if the government must choose between the US’s ‘technology’ and China’s ‘market,’ it should choose technology. The Korea Institute for Industrial Economics & Trade (KIET) recently stated in a report, “Considering current global industrial and technological trends, sustainable development without semiconductors is impossible,” and “Even if exports to China are halted, it will be a temporary phenomenon, and substitute demand will arise from other countries.” KIET added, “Production bases reorganized through the de-China-ization by major countries including the US and Japan will absorb the substitute demand.”

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