Profit and Loss Statement of the Semiconductor Industry Caught Between the US and China [New Economic Security Landscape]

③ Intensifying Global Semiconductor Hegemony Competition... Impact on Korea

[Image source=Yonhap News]

The U.S.-led Indo-Pacific Economic Framework (IPEF) has officially launched, throwing the global semiconductor market into turmoil. Especially with the imminent establishment of the 'Chip4 Alliance' aimed at countering China, which is aggressively pursuing semiconductor dominance against the U.S., domestic semiconductor companies face the risk of being caught in a 'sandwich' situation. The industry is busy calculating the 'profit and loss statement' between China, the largest consumer, and the U.S., which has formed a technological alliance.

According to industry sources and foreign media on the 25th, the U.S. is expected to officially announce the formation of the 'Chip4 Alliance' soon. It is reported that the U.S. already proposed the formation of an alliance to secure semiconductor supply chains to the governments of South Korea, Japan, and Taiwan last year.

Nominally, the 'Chip4 Alliance' aims to strengthen each country's supply chain security, but underlying it is the U.S.'s strategic intent to thoroughly check China. The alliance intends to build a 'semiconductor fortress' against China by uniting South Korea, the strongest in memory chips, Taiwan, the number one in foundry (semiconductor contract manufacturing), and Japan, which excels in materials, parts, and equipment.

Regarding the 'Chip4 Alliance,' industry experts view it as a good opportunity for participating countries to complement each other's weaknesses. They also predict it will help resolve the 'global supply chain instability' that has persisted over the past few years. Particularly for South Korea, it is analyzed as a good chance to secure synergy through close cooperation with the U.S. in semiconductor design and to potentially break the dominance of Taiwan's TSMC in the foundry market.

An Gi-hyun, Executive Director of the Korea Semiconductor Industry Association, said, "For South Korea, the technological alliance could bring good opportunities in manufacturing technology development, research and development (R&D) capabilities, and investment." He added, "Japan is also expected to further develop its strong materials industry through such a technological alliance." Kang Sung-chul, Senior Research Fellow at the Korea Semiconductor Display Technology Society, evaluated, "Considering the ongoing global supply chain instability, this technological alliance is quite significant." Kang said, "South Korea needs to establish leadership in the global supply chain market through this alliance," and added, "U.S. President Joe Biden's visit to South Korea was a good opportunity to showcase South Korea's leadership as a semiconductor powerhouse to the world."

However, from the perspective of South Korean semiconductor companies, it is not easy to simply accept the U.S. proposal. This is because China is South Korea's largest semiconductor customer. China accounts for about 40% of the semiconductor export market, and including Hong Kong, it reaches 60%. In particular, Samsung Electronics and SK Hynix have production plants in China. Samsung Electronics' Xi'an plant accounts for 10% of global NAND flash production. An industry insider said, "From China's perspective, they are bound to feel displeased about a semiconductor alliance that excludes them," and predicted, "Our companies may have to walk a dangerous tightrope between the U.S. and China."

However, experts believe the likelihood of the U.S. and China continuing this 'strongman confrontation' over semiconductor issues is low. This is because a clash between the two countries could lead to rising semiconductor prices and significant disruption to the global supply chain.

Executive Director An explained, "This supply chain alliance was not deliberately excluding China," and added, "Since it is an alliance from the supplier's perspective, there was no need to cooperate with China, the consumer." Senior Research Fellow Kang also said, "Rather, since South Korea has semiconductor plants in China, both countries stand to gain more from strengthening the supply chain," and added, "If sanctions are imposed, equipment cannot be supplied to Korean plants in China, but through the alliance, these issues might actually become possible to resolve."

Another industry insider said, "If Korean semiconductor plants in China are forced to close due to U.S. restrictions, the U.S. will inevitably suffer damage as well," and predicted, "It could lead to rising semiconductor prices and difficulties in meeting the semiconductor demand of U.S. companies."