All in for chips

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All in for chips

 Yi Jung-jae
The author is a columnist of the JoongAng Ilbo.

How has South Korea become a global powerhouse in semiconductor production? One industry veteran cited the Korea-U.S. alliance as a primary reason. Just when Samsung was beginning to try its hand at chipmaking in the early 1980s, the U.S. Central Intelligence Agency found that South Korea’s semiconductor industry could be a positive development as it could lessen the risk of American chip reliance on Japan. The No. 2 economic power at the time was threatening the United States.

Washington acted on the advice. After depreciating the U.S. dollar relative to the Japanese yen through the Plaza Accord in 1985 along with other key economies, the U.S. and Japan entered a bilateral trade agreement on semiconductors under which Japan had to raise the share of foreign chips in its domestic market by up to 20 percent and promise not to sell its computer chips under prevailing prices in America. Since then, Japanese companies had to end production of dynamic random access memory (DRAM) chips. Their exit made opportunities for newcomers from Samsung, Hyundai and LG from South Korea. American companies willingly transferred their chipmaking technology and equipment to South Korea.

But in 1992, Korean chipmakers became a target of the United States. The Department of Commerce slapped Samsung with preliminary antidumping duties of over 80 percent. When finalized, it would have been more or less a death sentence to Samsung’s chip operation. The Korean government and business organizations went all-out to save Samsung. Over $1 million was reportedly spent to lobby American computer makers above all. Korea sent a petition to the Commerce Department after getting signatures from all major companies including IBM, HP and Apple. During a breakfast meeting in Silicon Valley in early 1993, Apple CEO John Sculley sat across from president-elect Bill Clinton. He argued to the new president that the U.S. computer industry could be jeopardized if Korean chipmakers faced heavy tariffs for their chip exports to the U.S.

The levy on Samsung Electronics was reduced to 0.74 percent from 87.4 percent in a final ruling. It was the heaviest cut ever by the Commerce Department. Samsung’s chip exports were saved. At one time, it made a whopping 50 percent profit from the sale of every chip it made. No company ever made so much money out of one item in Korea.

The industry veteran said the Korean government and business groups fought as one and as if in a war. They went after every major player in the political and business communities in America. That would not have been possible if Korea and the U.S. had not been allies, he recalled. Without the chip jackpot, Samsung Group Chairman Lee Kun-hee could not have made his milestone business declaration in Frankfurt, Germany, in 1993.

A new chip war is unfolding in 2021. America’s target has changed from Japan to China. The battle has become even fiercer. It has become more than a trade issue and expanded to the security and diplomatic fronts. “This is infrastructure,” said U.S. President Joe Biden with a wafer in his hand as he rounded up CEOs from chip, computer and IT companies for a White House videoconference. He drew bipartisan support from Congress for his proposal for $50 billion funding for semiconductor manufacturing and research in America. Biden plans to come up with even stronger stimuli to revitalize the U.S. semiconductor industry. Leaders in the European Union, China, Japan and Taiwan are also pitching to enliven their semiconductor habitat for stronger sovereignty amid global shortages.

But Korea is still at the starting line, even though semiconductors make up 20 percent of its exports and 30 percent of the operating profit of all listed companies. Semiconductors are a symbol of the Korea-U.S. alliance and the country’s biggest strength against China. But government support is near zero. Local companies are being ambushed with various anti-business laws. President Moon Jae-in must step in. He must come up with a special law to promote the semiconductor industry. The ruling Democratic Party’s dominant 180 seats in the National Assembly can finally be put to good use. A situation room must be set up in the Blue House to study all possible measures — deregulation, infrastructure support and grooming of engineers and researchers across the field. Showmanship like holding up a wafer or chip will be tolerated in this case.

Chips are the heart and soul of Korea Inc. They are the blood that make up its economic vitality. They are also a byproduct of government-business collaboration and the Korea-U.S. alliance. Moon must dedicate himself to our chip industry until his term ends next spring. If he does so, it will be a wisely spent final year of his presidency.
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