hankyoreh

The Samsung Electronics chip foundry in Austin, Texas. (courtesy Samsung Electronics)

“At the heart of the problem is Taiwan.”

Earlier this month, when speculation and controversy were rampant over the US-led push to form the so-called “Chip 4” pact, an official working in the semiconductor industry told the Hankyoreh that, while the US is trying to embrace Taiwan, “China is opposing this.”

Their view was thus that, instead of trying to figure out or focus on whether South Korea will join Chip 4, we should be looking at Taiwan as the actual central factor in this debate.

According to the official, if South Korea is now standing at a crossroads of technology (the US) and markets (China), then the answer should “obviously” be technology. The reason for this, the official explains, is because technology is needed first in order to produce products that can be sold in markets.

In reality, South Korea’s participation in Chip 4 — a microchip supply chain consultative group led by the US which includes South Korea, Japan and Taiwan — is essentially already a done deal.

According to reports on Monday, South Korea’s intention to join Chip 4 has already been conveyed to the US and a preliminary meeting, which is considered the starting point for discussions to fully establish the body, will be held at the end of this month or by early next month.

When asked about South Korea’s participation in the tech pact on his way to his office on Monday, President Yoon Suk-yeol told reporters there is nothing to be concerned about. “We will carefully examine and discuss with relevant ministries and agencies to protect our national interests,” Yoon said.

Meanwhile, a report published last month by the Korea Institute for Industrial Economics and Trade (KIET) also supports the argument that Taiwan is indeed the keyword when it comes to Chip 4.

“Some are raising the possibility and risks of Korea’s global chip alliance being alienating,” the report, titled “The Change of Semiconductor Geopolitics and Korea’s Path,” stated.

“But on the other hand, the West’s perception of the threats to Taiwan’s security is very serious,” the report continued, adding that the true objective of the US and European Union is to reduce mid to long-term dependence on Taiwan and increase their own share in the semiconductor industry.

As such, according to KIET’s analysis, companies and leaders in semiconductor industries in both the US and EU are heavily focused on reducing their dependence on Asia. At the center of this, then, is to “break away from Taiwan’s market monopoly” when it comes to semiconductors.

“Due to China’s public insistence on unification by force [with Taiwan] and the Ukraine crisis, the West is feeling a serious sense of crisis [considering the possibility] of this major industry being hit by a devastating blow if the supply of leading edge and mature semiconductors is blocked off at the same time as a Chinese annexation of Taiwan,” the report read.

This is based on the ways the US and EU have been supporting their semiconductor industries and the remarks of key figures.

A good illustration of this is the US Department of Commerce 2022-2026 Strategic Plan, which was published back in March. According to this plan, the number one goal for the US was to strengthen its domestic manufacturing and supply chains and the main strategy to achieve this is by beefing up its domestic leading-edge semiconductor capabilities.

Similarly, major officials from the US and EU have also been warning about the risks of being overly dependent on Taiwan.

For example, US Commerce Secretary Gina Raimondo said in an interview in May that US “dependence on Taiwan for chips is untenable and unsafe.”

Similarly, European Commission President Ursula von der Leyen said in a video address to the World Economic Forum the same month that the dependence and uncertainty associated with importing semiconductors from a concentrated number of foreign companies is “unacceptable.”

Although “embracing” Taiwan and “breaking out” of the Taiwanese semiconductor monopoly seem to be on opposite sides of the spectrum, when looked at in terms of short and long-term goals, things begin to make more sense.

Since it’s difficult for the US to establish itself as a major chip manufacturing base in the short-term, it is choosing to first work together with its allies in Northeast Asia and, like this, move forward by strengthening its own domestic chip manufacturing capabilities in the long-term.

Regarding the US move to increase cooperation with Northeast Asian partners such as Taiwan, particularly centered on the establishment of Chip 4, KIET states, “In the face of poor manufacturing capacity, [the US] is approaching [Northeast Asia] for the purpose of stabilizing supply and demand in the short term to minimize damage to the demand industry [in the US] caused by [possible] future supply chain shocks.”

Lee Jun, a senior researcher at KIET, said in a phone call with the Hankyoreh, “We do not know everything about the US, but it is true that [they] are very concerned about the geopolitical instability in Taiwan.”

Lee continued to explain that the US will slowly use a “fading out” strategy to reduce its dependence on Taiwan over time, while having South Korea as its primary alternative to disperse any possible associated risks. The “ultimate” goal, however, is for the US to have as many semiconductor manufacturing bases as possible in its own country, Lee says.

Washington is expected to adopt this gradual strategy since it will likely take a considerable amount of time to fully establish itself as a semiconductor manufacturing base.

Therefore, Chip 4 is considered an opportunity for South Korea in the short term. Because Korea, as the world’s only alternative in terms of technological competitiveness, has no choice but to step up and be the next best option for the US and EU, who, due to their various concerns, are seeking to diversify supply chains for high value chips.

In the long run, however, South Korea’s semiconductor industry will also likely be negatively impacted by the US and EU’s attempts to reduce their dependence on Asia.

“Around 2025, the competitive environment of Korea’s semiconductor industry is expected to deteriorate mainly due to the risk of oversupply,” the KIET report reads. “Uncertainties in the global economy and semiconductor demand industry are also increasing.”

Currently, the US dominates the global semiconductor market with design-specialized companies (fabless) such as Qualcomm and Nvidia, while Japan is unrivaled when it comes to semiconductor materials and parts.

However, when it comes to semiconductor consignment manufacturing (foundry), Taiwan's TSMC is the undisputed top dog.

Propelled largely by Samsung Electronics, South Korea has risen to become one of the world’s leaders in memory semiconductors, and it ranks second only to Taiwan in the foundry area.

The origins of Chip 4 lie in the US’ vision of reining in China through stronger semiconductor cooperation with Japan, South Korea, and Taiwan. Because of that, some analysts have interpreted it as a kind of economic and security “alliance” meant to shut China out of supply chains. This is also the reason some have been predicting possible economic retaliation from China along the same lines as its response to South Korea’s deployment of a Terminal High Altitude Area Defense (THAAD) anti-missile system.

Speaking about Chip 4 with reporters Monday at the Central Government Complex in Sejong, Minister of Trade, Industry and Energy Lee Chang-yang said the matter would be “decided purely on the basis of economic interests.”

“We have no intention of excluding China or any other specific country, or creating a group that is closed off to others,” he stressed.

Commenting on the possibility of South Korea’s participation in Chip 4 triggering diplomatic retaliation from Beijing, Lee said, “While I can’t speak about the specifics, I think that likelihood will depend on the content, level, and methods of Chip 4.”

“We intend to present our own views on what the best direction is at the Chip 4 preliminary meeting,” he added.

An official with the Ministry of Trade, Industry and Energy said, “The idea of Chip 4 being an ‘alliance’ is a nickname mistakenly applied by the media, which is both inappropriate and excessive.”

“The main parties actually participating are companies like Samsung Electronics and TSMC, which are in a relationship of competition. How can speak of that as being ‘forming an alliance?’” they asked.

“An alliance is about excluding other places [countries], and when it comes to semiconductors, there’s no possibility of decoupling from China [as the largest market],” they added, adding that Chip 4 should “properly be viewed as a consultative body or dialogue channel to ensure supply chain stability.”

By Kim Young-bae, senior staff writer

Please direct questions or comments to [english@hani.co.kr]