chips + components, ic manufacturing, chips 4, inflation, samsung, sk hynix, sk on, south korea

On her visit to South Korea, US vice president Kamala Harris vowed to work with the country to resolve the disputes surrounding the US Inflation Reduction Act (IRA). Signed into law last month, IRA lays out tax credits of up to US$7,500 for electric vehicles (EV) assembled in the US, Canada and Mexico, but threatens to damage South Korea automaker Hyundai and its affiliate Kia. Hyundai, the second largest EV player in the US in terms of market share, announced in May 2022 to invest US$5.5 billion in constructing its first EV and battery plant in the US state of Georgia. Production, however, will only begin in 2025, making the project ineligible for state subsidies until then, and triggers skepticism toward the US within South Korean industry. Repercussions from the IRA are now further complicating the ongoing US efforts to secure South Korean commitments to join the US-led, so-called “Chip 4” alliance that also includes Taiwan and Japan.

Some already have a pessimistic outlook to US-Korean industrial relations. “Our semiconductor industry has a lot of concerns about what the US government is doing these days,” Ahn Duk-geun, South Korea’s trade minister, said in a recent interview with Financial Times. Wonho Yeon, a research fellow at the Korea Institute for International Economic Policy, told BusinessKorea that measures similar to the IRA are likely to follow “one after another” until the 2024 US presidential election. In response, the South Korean government needs to enhance its bargaining power, Yeon said. Reports from South Korea’s Maeil Business Newspaper claimed that the South Korean government has proposed to create a joint response team consisted of government and industry officials to strengthen South Korean negotiation position.

Chey Tae-won, chairman of SK Group, also told BusinessKorea that the conglomerate, the 2nd largest behind Samsung, is changing its strategy to brace for further regional turbulence. Instead of the previous focus on profit maximization and efficiency, the SK Group chairman said that safety would be the company’s priorities these days, adding that he has been making plans for various scenarios, including a potential US-China military clash over Taiwan – a worst-case scenario. Furthermore, Chey indicated that it wouldn’t be possible to abandon the Chinese market, given its large share in South Korean exports. Instead, the SK Group leader urges the government to come up with measures to address the situation and offers more support to South Korean companies, remarking that “it doesn’t make sense” for a company to solve such an issue on its own. In 2021, China accounted for 24% of South Korea’s total trade, making it South Korea’s largest trade partner, while approximately US$76.8 billion of South Korean chip exports went to China in the same year.

Some in the South Korean chip industry, however, find it inevitable to partake in the Chip 4 alliance. In a seminar held by the Federation of Korean Industries on September 28, South Korean lawmaker and former Samsung executive Yang Hyang-ja, also the head of the National Assembly’s Semiconductor Industry Special Committee, told the audience that it was “imperative” for the country to join the Chip 4 alliance, given the US dominance in semiconductor upstream. The lawmaker nevertheless lambasted the South Korean government for failing to negotiate effectively with the US on chips and autos, saying that the government should send negotiation delegates with profound industrial knowledge, Korea JoongAng Daily reported. As the main architect of K-Chips acts, South Korea’s answer to the US Chips Act, Yang interpreted the US Chips Act as the country’s attempt to catch up with South Korea and Taiwan in logic and memory chips, and used the occasion to urge the South Korean legislature to pass the K-Chips acts, according to various South Korean media.

Proposed in early August, the K-Chips acts seek to allocate US$260 billion into South Korean semiconductor industry in a course of five years, and aim to cut red tapes, expand tax credits and sponsor training programs. However, K-Chips acts remain stalled, as major political parties haven’t reached a consensus on the content.

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