South Korea Faced With Picking Sides as US-China Chip War Heats Up

US President Joe Biden meets vitually with the Chairman and Principal Owner of SK Group Chey Tae-won in the Roosevelt Room of the White House in Washington on July 26, 2022. Brendan Smialowski/AFP via Getty Images

South Korea, a leader in the global semiconductor chip industry, now faces the dilemma of choosing sides in the U.S.-China semiconductor chip war. South Korea has been invited by the United States to join the Chip 4 alliance with the United States, Japan, and Taiwan, explicitly to counter China’s dominance in the global chip industry.

Semiconductors play a critical role in many key industries including automobiles, electric appliances, healthcare, military systems, and computing. It is so important—both economically and strategically—that the Japanese and South Korean governments compare it to rice.

The global supply shortage, initially caused by halted chips production in China due to the coronavirus pandemic, has now gotten worse. The United States appears determined to restructure the global semiconductor supply chain without China.

South Korea has been highly successful in the memory semiconductor business, but it relies on the United States for design and China for export. Now, this balance can no longer be maintained as both countries try to pull South Korea to their side.

SK Group’s $22 Billion Investment in US Tech

President Joe Biden and other key politicians have been visiting South Korea to encourage investment in the U.S. semiconductor chip business.

During her visit to South Korea on July 19, U.S. Treasury Secretary Janet Yellen called on “friend-shoring” with “trusted” U.S. allies to reduce China’s dominance on global supply chains.

On July 26, Chey Tae-won, chairman of South Korean conglomerate SK Group, announced SK’s $22 billion investment in U.S. tech industries including semiconductors and pharmaceuticals at the White House.

SK Group is the world’s third largest semiconductor manufacturer and ranks second in South Korea.

SK plans to invest $15 billion in the semiconductor industry including building memory semiconductor chip facilities, materials, and R&D; $5 billion in green energy such as battery materials, and other industries such as bioscience and pharmaceuticals. With previous investment plans made prior to this announcement, Chey remarked that this brings the total SK Group investment going forward to almost $30 billion.

“This pathbreaking announcement represents clear evidence that the United States, Korea, and its allies are back and winning the technology competition of the 21st century,” said Biden.

Samsung to Invest $17 Billion in Texas Semiconductor Facilities

Biden in May visited South Korea and spoke with the of Samsung Electronics Vice Chairman Lee Jae-Yong and the chairman of Hyundai Motor Group Chairman Chung Euisun.

He also toured the Samsung Electronics Pyeongtaek Campus and talked with Lee about potential U.S.–South Korea chips alliances. Samsung Electronics is a global leader in memory semiconductors and the world’s second-largest foundry. It’s also the only foreign company that has been invited to several U.S. supply chain policy meetings since October last year.

In November 2021, Samsung announced a $17 billion investment in building semiconductor manufacturing facilities in Texas, its largest-ever investment in the United States.

Recently, Samsung also filed 11 tax break applications for potential chip plants in Texas, accounting for approximately $192.1 billion in investment and 10,000 jobs. These applications fall within the Chapter 313 incentives program and Samsung could benefit from a $4.8 billion tax break rebate.

Senate Approves $280 Billion Bill to Counter China’s Competitive Threat

On July 27, the Senate passed the $280 billion “Chips and Science Act,” allocating billions of dollars to scientific research and semiconductor chip manufacturing in order to boost U.S. competitiveness. This provides a $52 billion fund to statewide chip manufacturers and a 25 percent tax incentive worth $24 billion for investment in domestic chips.

Companies such as Samsung, SK Group, Intel, and TSMC have already announced major investment plans in the United States and so will benefit from the legislation, with one condition: they are not allowed to expand their advanced chip production in China, or any other country of concern, for 10 years. Companies that violate the restrictions will be required to pay back the federal funding.

China Threatens Korea With ‘Commercial Suicide’ Claim

In recent years, China has focused on expanding its semiconductor chips industry with massive spending to strengthen its dominance in the semiconductors supply chain. As the U.S.–China chips war heats up further, the Chinese Communist Party (CCP) is trying to pull South Korea to its side with the threat of losing China as its export market.

CCP mouthpiece the Global Times published an editorial titled “South Korea should have the courage to say ‘no’ to US coercion” on July 20, criticizing the Chip 4 alliance and threatening South Korea that joining it could lead to significant losses. The Global Times article noted that 60 percent of South Korea’s $128 billion in semiconductor exports last year was exported to China and Hong Kong, and that to leave such a market would be equivalent to “commercial suicide.”

In a press conference on July 26, China’s Foreign Ministry Spokesperson Zhao Lijian strongly opposed South Korea joining the Chip 4 alliance and reiterated the importance of China to South Korea, especially regarding exports.

On July 25, during a conversation between South Korea’s Trade Minister Ahn Duk-geun and Chinese Ambassador to South Korea Xing Haiming, Xing said that China wants to strengthen its economic and trade cooperation with South Korea, and will provide more opportunities for Korean businesses.

During Xing’s meeting with South Korean head of the Semiconductor Industry Special Committee Yang Hyang-ja on the 26th, he said China hopes to “exclude external interference” with South Korea and strengthen corporations in the semiconductor industry.

But Yang recently said that she recommended to President Yoon Suk-yeol that South Korea join the Chip 4 Alliance. A weakening or broken alliance with the United States is worse than one with China, she said, so South Korea should have a strategic alliance with the United States.

Prime Minister Han Duck-soo: It is necessary to see the positive side of the four-country alliance

During an interview with KBS radio on July 28, when asked on whether South Korea will join the Chip 4 alliance, Prime Minister Han Duck-soo responded that it is necessary to see the positive side of the alliance.

The prime minister explained that as a global leader in the semiconductor industry, South Korea joining the alliance would make it easier to share information, take a leading position in setting rules, and strengthen Korea’s cooperation with other member countries.