[EAI Dialogue] The US-China Semiconductor War and Korea's Choice

■ President Son Yeol: Through the CHIPS and Science Act passed in August last year, the Biden administration plans to invest approximately 50 trillion won to foster the semiconductor manufacturing sector, where the US is currently weak. This is a strategy to dramatically reverse the trend of the US's overwhelming dominance, which once accounted for 40% of global chip production in the 1990s, but has now fallen to about 10%.

The US does not view semiconductors merely as an advanced industry. If semiconductors were the 'rice of industry' in the past, they are now 'infrastructure,' as President Biden puts it. They are a technology and industry that forms the core foundation of the national economy and the bedrock of national security. Therefore, this legislation should be seen as having three intentions: first, to restore the competitiveness of the US semiconductor manufacturing sector; second, to strengthen the US supply chain, particularly through 'friendshoring' with countries like Korea, Taiwan, Japan, and the Netherlands, where key companies are located; and third, to increase pressure on China and curb its semiconductor advancements.

Can the US truly achieve these three goals simultaneously? What should be Korea's response, given the significant difficulties expected for Korean companies with production bases in China? Several questions arise. First, what is the impact of US semiconductor policy on major semiconductor-producing countries like Korea and the global economic order?

■ Ambassador Lee Jae-min: From the US perspective, semiconductors are crucial for maintaining its economic advantage in the digital age. Having lost its lead in various semiconductor sectors, the US has long discussed countermeasures such as supply chain reorganization, subsidies, or sanctions on companies trading with China, and domestic companies and the government have consistently prepared for this.

However, what makes the current situation different from the past is that the US policy is being prepared and presented too aggressively and hastily. The US also appears to be quite taken aback by the strong reactions from related countries and negative domestic public opinion. Therefore, while the US seems to be considering finding appropriate compromises, the fact that the US is repeatedly taking such measures, as seen in the case of the Inflation Reduction Act (IRA), is concerning.

It appears that the US is not pursuing its policy with a precise roadmap or plan, but rather is hastily deciding on various policy tools for short-term goals, experimenting with the system, and making adjustments as it goes through trial and error. This will ultimately lead to uncertainty in the market and international relations, and inflict fatal damage on businesses.

Even if issues like the CHIPS Act and the IRA are resolved through some compromise, the concerns of companies and governments looking at the US will be amplified if such issues repeatedly arise. It is not uncertainty due to market competition, but instability in the entire market due to the uncertainty of US government policy that will cause major problems for the semiconductor industry going forward.

■ Professor Bae Young-ja: If the 'guardrail provision' of the CHIPS Act is implemented, it will be impossible to make significant new investments in China for 10 years, meaning that production facilities operated by Korean companies in China and investments in China will inevitably decrease. Furthermore, provisions such as 'clawback of excess profits' and 'permission to access production facilities' stipulated in the CHIPS Act have a significantly negative impact on companies like Samsung and SK Hynix, which operate a tri-polar system centered in Korea with bases in China and the US.

Within the US, there has been ongoing debate about why subsidies provided with US taxpayer money should be given to foreign companies. In response, the US government has expressed its intention to prioritize its own economic security and has introduced strict policies. Ultimately, the US expects something from Korean companies in the process of regaining manufacturing competitiveness.

Korean companies must continue to communicate with the goal of maintaining their competitiveness in existing manufacturing sectors while also preserving their relationship with the US and securing corporate profits. It is urgent to adjust and negotiate in a way that aligns with the growth of Korean companies and national interests.

The provision of semiconductor subsidies this time will not be a one-off investment but a long-term one, and much of it will be politically determined in the process, so this announcement of support is likely just the beginning.

■ President Son Yeol: If the US subsidy policy excessively restricts corporate activities, are there no options for Korean companies to refuse the support?

■ Professor Bae Young-ja: For Samsung and Hynix, which have decided to make large-scale new facility investments in the US, it is practically impossible not to apply for subsidies, as they would have to operate at a loss without them. Subsidies are necessary because securing labor in the US is difficult, and environmental and processing costs are high. Since subsidies cover approximately 20% to 30% of the excess costs, investments cannot proceed without discussions about subsidies.

■ Ambassador Lee Jae-min: When a government requests and attracts investment from companies, deregulation and subsidies are major components, and it is common to present these as a 'total package' to foreign investors. Of course, there are conditions for subsidies, but these are conditions for receiving them, not regulations for joint operation or data sharing. Therefore, all companies would have been very surprised by this US subsidy policy. Consequently, the current US policy is difficult to consider as a general subsidy, and adjustments will be necessary in the future.

The clawback of excess profits is also difficult to define conceptually, and determining excess profits often leads to legal issues. In a market with high volatility like the semiconductor industry, judging profits is not easy, and clawing back excess profits, while possible in terms of numbers, is unrealistic.

■ President Son Yeol: If the CHIPS Act is implemented largely in its current form, is a full-scale US-China decoupling expected?

■ Professor Bae Young-ja: Decoupling is impossible and unnecessary in the overall picture. However, decoupling is already underway in the advanced chip manufacturing sector, and if the 'guardrail provision' proposed by the US is implemented, production facilities in China will not be able to upgrade properly, leading to a natural decoupling.

The biggest problem that decoupling from China poses for Korea is the need to consider how to maintain the production facilities of domestic companies in China or how to seek a smooth exit strategy.

The announcement of the CHIPS Act's implementation clearly states that it will apply equally to foreign companies as well as Korean companies, necessitating renegotiation. Furthermore, as US regulations show a trend of expanding beyond semiconductors to other advanced technologies such as artificial intelligence and quantum computing, decoupling and response strategies will continue to be discussed.

■ Ambassador Lee Jae-min: 'Decoupling' has various spectrums, so different reactions emerge regarding the possibility of decoupling by product and sector. From this perspective, the core semiconductor sector is a key item for the US in the digital age. Therefore, as long as the US maintains its current policy towards China, it will inevitably lead to decoupling. It can be interpreted that the US is currently conducting various experiments in the process of implementing this policy.

If the US diligently engages in continuous consultation and coordination with neighboring semiconductor-producing countries to formulate new measures, it will be able to maintain superiority over China in the core semiconductor sector in the long run. China will remain a major producer, but the US is expected to lead the market by maintaining a certain distance, controlling the core semiconductor and R&D sectors.

■ President Son Yeol: The US goal of securing competitiveness in semiconductor manufacturing is not the same as its goal of containing China. Simply hindering China's growth may not lead to US dominance in the manufacturing sector. Will the US achieve manufacturing competitiveness if the current legislation is implemented as is?

■ Professor Bae Young-ja: Initially, I was skeptical when the US announced advanced semiconductor manufacturing and invited TSMC and Samsung. Given the characteristics of the US economic system, many questioned how advanced manufacturing could be achieved amidst higher production costs and a lack of labor. Semiconductor manufacturing is not at all aligned with US strengths, but seeing the strong push driven by government initiatives and the domestic atmosphere in the US, I believe there will be some impact, but it is too early to predict success or failure.

For this policy to succeed, long-term investment beyond five years is necessary, and to sustain such investment, domestic US political factors like elections are important. If these conditions are met, there is no reason why the US cannot maintain its dominance and surpass China.

■ Ambassador Lee Jae-min: I agree. For the US to engage in semiconductor manufacturing is a very difficult task. They are introducing various policies to overcome diverse challenges, and we will have to wait and see how well the policy will and support function.

■ President Son Yeol: Korea, which relies on US technology while also depending on the Chinese market, faces a huge dilemma. How should the government and companies respond in the future?

■ Ambassador Lee Jae-min: Until now, we have dealt with such issues on a case-by-case, issue-by-issue, and company-by-company basis. When a problem arises, we solve it, and when the next problem arises, we focus on that. Now, we need to discuss these issues in a broader picture as a 'package deal,' or establish a basic agreement and then find solutions together for specific issues that arise within that framework.

Furthermore, we must persuade the US that it is difficult to find a partner like Korea when establishing new norms in the semiconductor sector, and create a win-win framework between Korea and the US. Currently, Korea always follows what the US wants, leading to insufficient profit gains and high costs. This is an area that requires continuous consideration, discussion, and consultation going forward.

■ Professeure Bae Young-ja :En ce qui concerne la sécurité économique, la Corée a trois grands ordres du jour. Premièrement, la « gestion de crise » pour répondre aux problèmes à court terme lorsqu'ils surviennent ; deuxièmement, les « alliances » pour coopérer avec d'autres pays ; et troisièmement, la « vision » que la Corée doit présenter pour maintenir sa compétitivité technologique. Face à la réglementation croissante de la Chine, le gouvernement et les entreprises coréens réagissent conjointement. Par ailleurs, compte tenu des alliances, la gestion de la dés-chinalisation est très importante, et des efforts sont faits pour élargir la coopération avec les pays tiers.

À l'avenir, lorsqu'elle répondra à ces politiques, la Corée devra présenter une vision qui relie une vision tangible à des objectifs concrets et à la situation de mise en œuvre. Par exemple, le « document de vision » publié par les États-Unis concernant la loi sur les semi-conducteurs décrit en détail la vision que le pays souhaite réaliser, depuis les décrets d'application spécifiques jusqu'à la grande image. Il est réaliste que tous ces objectifs et visions ne soient pas entièrement atteints, mais je pense qu'il s'agit d'un document systématique issu du processus de recherche désespérée de solutions aux problèmes. La sécurité économique nécessite une coopération interministérielle car elle implique des investissements, la gestion de crises et la gestion des alliances à long terme. En outre, la coopération entre le secteur privé, les experts et les entreprises est importante, et diverses parties prenantes doivent avoir des discussions actives sur les principaux ordres du jour et la gouvernance de la sécurité économique afin de construire un système capable de répondre aux problèmes sur le long terme, et non de manière ponctuelle. ■

■ Auteur :Bae Young-jaProfesseure au Département de science politique et de relations internationales de l'Université Konkuk. Diplômée du Département de relations internationales de l'Université nationale de Séoul, elle a obtenu un doctorat en science politique de l'Université de Caroline du Nord aux États-Unis. Ses principaux domaines de recherche sont l'économie politique internationale, l'économie politique des investissements étrangers, la science et la technologie et les relations internationales, Internet et les relations internationales, et la diplomatie scientifique et technologique. Ses articles majeurs comprennent « Étude sur la politique mondiale de la science et de la technologie : état actuel et perspectives » (2021), « Hégémonie en politique internationale et innovation technologique : le cas de la technologie des semi-conducteurs aux États-Unis » (2020), « L'essor des entreprises Internet chinoises et la souveraineté sur Internet » (2018), « Rivalité hégémonique sino-américaine et innovation scientifique et technologique » (2016), « Science, technologie et diplomatie publique » (2013).

■ Auteur :Lee Jae-minAmbassadeur pour la sécurité économique et professeur à la faculté de droit et à l'école de droit de l'Université nationale de Séoul. Il a obtenu une licence, une maîtrise et un doctorat en droit de la faculté de droit de l'Université nationale de Séoul, ainsi qu'un doctorat en droit (Juris Doctor) de la faculté de droit de l'Université de Boston et une maîtrise en droit (LL.M.) du centre de droit de l'Université de Georgetown. Il a travaillé au ministère des Affaires étrangères après avoir réussi le 26e examen de recrutement des diplomates. Il a exercé en tant qu'avocat chez Willkie Farr & Gallagher LLP à Washington D.C. et a été professeur à la faculté de droit et à l'école de droit de l'Université Hanyang. Ses principaux domaines de recherche sont le droit international (droit du commerce international, droit de l'investissement international).

■ Auteur :Son YeolDirecteur de l'EAI. Professeur à la Graduate School of International Studies de l'Université Yonsei. Titulaire d'un doctorat en science politique de l'Université de Chicago, il a été professeur à l'Université Chung-Ang avant de devenir professeur à la Graduate School of International Studies de l'Université Yonsei et directeur de la Fondation East Asia Institute (EAI). Il a été doyen de la Graduate School of International Studies de l'Université Yonsei, directeur du Underwood International College, directeur du Center for Sustainable Development Studies et directeur du Institute for International Studies. Il a également été professeur invité spécial à l'Université de Tokyo et chercheur invité à l'Université de Caroline du Nord (Chapel Hill) et à l'Université de Californie (Berkeley). Il a été président de la Korean Political Science Association (2019) et président de la Association for Japanese Studies (2012). Il a été boursier senior Fulbright, MacArthur, Japan Foundation et du Waseda University Institute for Advanced Study, et a été membre consultatif du ministère des Affaires étrangères, de l'Institut national de diplomatie, de la Northeast Asian History Foundation et de la Korea Foundation, ainsi que membre expert du Comité pour l'ère de la Corée du Nord-Est. Ses domaines de spécialisation sont la diplomatie japonaise, l'économie politique internationale, la politique internationale en Asie de l'Est et la diplomatie publique. Ses ouvrages récents comprennent « Conditions de succès du président 2022 » (2021, co-édité), « Recommandations de politique étrangère pour le nouveau gouvernement 2022 » (2021, co-édité), « L'histoire de l'attrait mondial de BTS » (2021, co-édité), « Le choix de la Corée après la crise » (2021, co-édité), Japan and Asia's Contested Order (2019, avec T. J. Pempel), Understanding Public Diplomacy in East Asia (2016, avec Jan Melissen), « South Korea under US-China Rivalry: the Dynamics of the Economic-Security Nexus in the Trade Policymaking », The Pacific Review 23, 6 (2019), « La diplomatie des puissances moyennes de la Corée » (2017, co-édité).

■ Responsable et éditeur : Park Ji-soo, assistant de recherche à l'EAI

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