Beijing may vow to buy U.S. chips, not Korean

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Beijing may vow to buy U.S. chips, not Korean

Conflict between the United States and China over trade is threatening Korea’s semiconductor industry.

The Financial Times reported Monday that China is considering buying computer chips from the United States instead of Korea and Taiwan “in an effort to help reduce…trade surplus with the U.S.” The report cited “people briefed on the discussions” between Liu He, China’s vice premier, and Steven Mnuchin, the U.S. Treasury Secretary.

A nascent trade war was sparked by the United States last week when President Donald Trump approved new tariffs on up to $60 billion worth of Chinese imports in order to compensate for China’s alleged theft of U.S. intellectual property. China retaliated immediately, announcing tariffs on $3 billion of imports of certain U.S.-made products.

The proposal by China to source more semiconductors from the U.S. is considered part of the solution to the conflict, a move that reduces China’s annual trade surplus with the United States, which was about $376 billion in 2017. Trump sees the surplus as a threat to the U.S. economy and wants it to be reduced by as much as $100 billion this year.

China imports semiconductors worth about $260 billion annually, only four percent of which comes from the United States.

While the Financial Times said it’s unclear whether Washington will accept the proposal, a report by the New York Times published on the same day said that “Washington has resisted” it.

Regardless of how the United States responds, Korea’s red-hot semiconductor industry could really suffer.

According to data from the Korea Customs Service, Korea shipped computer chips worth $99.7 billion last year globally, a 60 percent year-on-year increase compared to 2016 - and the first time that the export of a single item exceeded $90 billion in Korea’s history.

About 40 percent of total semiconductor exports in 2017, or $40 billion worth, went to China, the data shows.

Given the heavy reliance on China, Korean chipmakers will not be able to dodge a bullet if China shifts the sourcing of its imported chips from Korea to the United States.

After the news broke overnight, shares of Samsung Electronics and SK Hynix - the largest chipmakers in Korea - tumbled Tuesday.

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