[Inside Chodong] Can Korea Form an Alliance with the US, Japan, and Taiwan?

TSMC, the world's No. 1 foundry (semiconductor contract manufacturing) company, is one of the sources that journalists covering the semiconductor and electronics sectors in Korea find difficult to access. Not only the founder Morris Chang, who established TSMC, but also the key executives generally refuse interviews with Korean media. On-site coverage of TSMC in Taiwan is also a challenging "insurmountable" task for Korean reporters. This issue is not limited to the media alone. Exchanges between Samsung Electronics and TSMC are rare. While Samsung Electronics Chairman Lee Jae-yong meets with Apple CEO Tim Cook, who is a competitor in the smartphone market, he does not meet with TSMC founder Morris Chang or other executives. Samsung Electronics and TSMC, which are competitors in the foundry market, are extremely wary of each other.

The reason Samsung Electronics and TSMC are not only competitors but also extremely cautious of each other is because the semiconductor industry, which is vital to the national economy, especially the foundry market that concentrates advanced technology and has high future growth potential, is divided between them. From TSMC's perspective, it is not favorable that Samsung Electronics, which leads the memory semiconductor market, is proclaiming itself as the "world's No. 1 system semiconductor company by 2030."

During the memory semiconductor market "chicken game" in 2007, many Taiwanese companies went out of business after being outcompeted by Samsung Electronics. Currently, only Nanya barely ranks within the "Top 5," and in terms of market share, it cannot compete with Samsung Electronics and SK Hynix, which control 70%. Taiwan, which has an export-driven economic structure similar to Korea, has semiconductors accounting for 40% of its total exports. Among Taiwan's top 10 companies by market capitalization, half?including TSMC, Foxconn, and MediaTek?are in the electronics and semiconductor sectors, showing how the country's economic fate depends on the semiconductor market. The experience of memory semiconductor companies, which had large factories and provided jobs in Taiwan, collapsing due to Samsung Electronics is an indelible scar on the Taiwanese semiconductor industry.

Taiwanese companies trust Japan more as a semiconductor partner than Korea, with which they have direct competition. Last year, TSMC partnered with Japanese company Sony to build its first semiconductor factory in Kumamoto Prefecture. This factory is scheduled to begin operations by the end of 2024. Additionally, TSMC is planning to invest 1 trillion yen (approximately 9.7 trillion KRW) to build a second semiconductor factory in Kumamoto Prefecture, Japan. They are also receiving subsidies from the Japanese government. On the other hand, relations between Korea and Japan were damaged when the Japanese government imposed export restrictions on key semiconductor materials in July 2019, undermining trust in collaboration. The two countries are now in the early stages of untangling this complicated situation. Both governments have agreed to swiftly conduct bilateral consultations to restore the status quo prior to the July 2019 export restrictions.

The United States, which leads the "Chip 4 Alliance" comprising Korea, the U.S., Japan, and Taiwan, is imposing broad conditions that could infringe on Korea's technological sovereignty under the pretext of providing subsidies for building semiconductor factories. To receive subsidies for establishing semiconductor plants in the U.S., Korean companies must disclose internal information such as profitability indicators and cash flow to prove financial soundness to the U.S. government. If a company earns profits beyond expectations, the U.S. government plans to reclaim up to 75% of the subsidies. Companies receiving subsidies will also face restrictions on semiconductor facility investments in China for 10 years. While the Korean government plans to prioritize and negotiate on the issues raised by companies, the U.S., which spearheaded the Chip 4 Alliance, has revealed its true intentions, increasing anxiety within the industry.

Alliances formed for mutual benefit and objectives must start from a relationship of trust where promises can be kept. The government must work to create an environment where countries and companies united in the alliance can firmly believe that cooperation will be beneficial. It is also necessary to thoroughly calculate what benefits Korea can gain from the Chip 4 Alliance, which has been pushed forward almost under U.S. leadership. Government support for the semiconductor industry, which can maximize benefits, is urgently needed.

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