US urged to respect Korea's position amid US-China chip war

A Samsung Electronics employee works at a memory chip production line at the company's plant in Xi'an, China, in this May 9, 2014, file photo. Courtesy of Samsung Electronics

Experts say Korea's top export item should not fall victim to trade dispute

By Baek Byung-yeul

The United States should give Korea's chip giants ― Samsung Electronics and SK hynix ― the utmost respect for their commercial activities in the Chinese market at a time when calls are growing among U.S. politicians for Korean firms not to be allowed to fill the vacuum left in China by a ban on U.S. chipmaker Micron Technology, according to experts, Friday.

On May 23, Rep. Mike Gallagher said in an interview with a media outlet that Korean chip companies should not be allowed to fill the U.S. chipmaker's absence in the Chinese market. His comments came after the Cyberspace Administration of China (CAC) announced on May 21 that Micron's products sold in China failed its cybersecurity review and decided to ban operators of critical infrastructure from buying the products of the U.S. chipmaker.

The U.S. announced restrictions on semiconductor equipment imported into China in October 2022 in order to limit China's chip technology. Though Samsung and SK hynix received a one-year reprieve from the regulations, Rep. Gallagher argued that Samsung and SK hynix should not receive the reprieve as Micron was penalized in China.

Regarding the remark of the U.S. congressman, experts said that pressuring Korean companies further to limit their commercial activities in the Chinese market would be a hindrance to private enterprises, as they are already fully on board with U.S. restrictions on Chinese chip technology.

They added that the move could lead to a negative chain reaction on all chip companies, including the U.S. chip giants if viewed in a wider context, because the industry is growing alongside the Chinese one, which has the largest chip market in the world.

"Mike Gallagher is one of 435 house representatives in the U.S. Congress. The fact that he's very noisy doesn't make him more important than the others," Jim Handy, general director at Silicon Valley-based semiconductor market research company Objective Analysis, told The Korea Times.

"No matter what issue is currently being discussed, some representatives will take strong stands for it, and others will take strong stands against it. It's something that politicians do to make their constituents aware that they are working hard to fulfill the voters' ideals. I suspect that the same thing is true in Korean politics."

Stating that "Samsung and SK hynix are in a very difficult position" amid the escalating chip technology war between the U.S. and China, the analyst said that the Korean companies mentioned that because of their large presence in China, they are currently unable to take all of their business strategies in the direction the U.S. wants them to go.

"They have both worked hard to win the favor of China's government by building huge and important facilities in Wuxi (SK hynix) and Xi'an (Samsung)," he said. "If they suddenly follow every wish that comes from any U.S. politician then China will find a way to make these companies wish they hadn't done that."

SK hynix's chip plant in Wuxi, China / Courtesy of SK hynix

The expert also predicted that it will be up to the Korean government to decide how to act in the midst of the U.S.-China trade dispute.

"Korea has a very good trade relationship with China and good trade and military relationships with the U.S. The Korean government is caught in the middle of this battle between two giants. Korea will have to work hard to find a diplomatic solution, and I don't expect the solution to involve choosing one side over the other," he said.

"While the U.S. politicians can take strong stands, and can say that Korea should do this or should not do that, the decision is in the hands of Korea. If the U.S. asks for something as a country, then the Korean government will certainly think very seriously about what it should do. If one politician asks for something then I would expect Korea's government to wait to see what the rest of the U.S. government thinks."

He added that Micron disappearing from the Chinese market won't be as extreme as the U.S. congressman fears. "I believe that both Samsung and SK hynix would like for Micron to remain an important supplier," he said. "Their customers will be very nervous if one more DRAM maker disappears. I expect for them to take calculated steps to make sure that their customers in China get what they need, and that Micron is not ruined as a result."

As Handy mentioned, Jensen Huang, CEO of U.S. chip giant Nvidia, said in a recent interview that the escalating chip war against China by the U.S. may bring enormous damage to the U.S. tech industry.

"If we are deprived of the Chinese market, we don't have a contingency for that. There is no other China, there is only one China," Huang said.

Kim Dae-jong, a professor of business administration at Sejong University, said semiconductors account for around 20 percent of the total exports of Korea. Sixty percent of chip exports go to the Chinese market, including Hong Kong, and Samsung and SK hynix have invested about 30 trillion won ($22.6 billion) each in China, which means China is a market they cannot afford to lose.

"It's hard for Samsung or SK hynix to argue their stance to the U.S. government," he said. "Our government needs to speak up for these companies. The government needs to convince its U.S. counterpart that the products these companies produce in China are not for military use, but for civilian domestic use. They need to convince their counterparts that the U.S. government's involvement in the private sector is overreaching."

The government has now requested that the U.S. government relax the details of the CHIPS and Science Act's guardrail provisions, which the U.S. unveiled in March. The U.S. had limited the extent to which Korean companies could expand their semiconductor production capacity in China under subsidies offered to companies building new chip production plants in the U.S. to 5 percent. The government requested that this be increased to 10 percent.