Biden's Chip4 Alliance: What is South Korea's position? Jeongmin Yoon, ESG Intern, American University
The Korean government is in trouble because of the Chip4 alliance. President Biden of the United States signed a $280 billion bill for the alliance and is now determined to push semiconductors in earnest. The U.S.is creating the alliance to keep China in check. The Republic of Korea proposed joining Chip4, and initially said it would attend the preliminary meeting, but they later drew a line, saying that the Republic of Korea has not decided to join. The U.S. says “Korea, do you want to join Chip4 or not? So let's talk about what the Chip4 alliance is and how the Republic of Korea has no choice but to join or have a conflict between the United States and China. What position should Korea take between these two countries? The answer is obvious.”
Chip4,
the de facto technology alliance that the United States is envisioning, stands
for semiconductor, and 4 stands for the United States, South Korea, Taiwan, and
Japan, the countries the US hopes will join the alliance So, to sum up,
Chip4 is the United States proposed four-nation semiconductor supply alliance. Why
these four countries? The U.S., the first country to lead Chip4, has the lead
in semiconductor design technology and holds numerous critical patents. In
fact, most of the original technologies are owned by the U.S. But the United
States is very weak in foundry production of semiconductors. Foundry production
is tightly held in Korea and Taiwan. By contrast, the United States has only
12% of production. Korea and Taiwan have the dominant advantage in foundry,
which produces both memory semiconductors and non-memory semiconductors. In
Korea, Taiwan Semiconductor Manufacturing Company (TSMC), Samsung Electronics
and SK Hynix have the largest share of the foundry industry. Finally, Japan has
a particular strength in the semiconductor core material equipment field. The
Chip4 Alliance strategy places all the kings of the semiconductor industry
gather at the dinner table to eat together.
One
of the biggest reasons for creating Chip4 is that the four countries in the Alliance
will combine to keep China in check. China is pushing hard for semiconductor
supply dominance and Chinese semiconductor development companies continue to
grow rapidly. Biden approved a $280 billion semiconductor aid bill. The
legislation says that while the U.S. created and designed semiconductors, it
has not produced them. The US will now help semiconductor companies around the
world produce them in the U.S.
The
bill provides $52 billion in subsidies and additional tax credits to companies
that manufacture semiconductors in the United States. This tax credit is a 25%
tax deduction for all production costs. In fact, in a country with high
corporate taxes like the United States, companies are already planning to build
factories in the United States. In fact, because of this bill, Intel is
building a lot of factories with great State and local support. Besides Intel,
AMD, Qualcomm, Samsung and TSMC are also gearing up semiconductor production in
the United States. Biden is promising that the bill will create thousands of high-quality
jobs.
But
there's a cut card hidden in the bill. Companies seeking U.S. federal funding
will not be able to upgrade their facilities in China for the next decade. This
is a brilliant strategic play that will move production from China into the US
over the long term. It also says that an oligopolistic system is fine for
everybody, except the Chinese. Samsung Electronics will not be able to expand
its semiconductor plants in Xi'an and Suzhou, China. Perhaps that's why China
issued a strong statement in opposition to Chip 4. This also factors into
current tensions concerning Chinese aggressiveness toward Taiwan.
China called Korea's participation in Chip4
"commercial suicide." I believe the Korean government wants to join
Chip4, but I see the Chinese creating a very difficult diplomatic situation.
The Korean government says it has no intention of excluding any specific
country even if it joins Chip4. We don't know yet whether China will retaliate
against Korea's participation in Chip4. I can't predict how much it will even
if they do. Further, even if it were certain that Korea will participate in Chip4,
the scope of the Alliance has not been confirmed yet.