Why Korea must join the Chip 4

Choi Byung-il
The author, a professor of economics at the Ewha Womans University Graduate School of International Studies, is president of the Korea Foundation for Advanced Studies.

As summer passes, the winds portend a change of season. A summer of sizzling heatwaves and downpours is preparing to give way to autumn. But let’s go back to the beginning of this summer. In the NATO Summit in Madrid in June, a lineup of unexpected countries appeared — Sweden and Finland to bid for NATO membership after ending their military neutrality and South Korea, Japan, Australia and New Zealand as guests.

What did the participation of Pacific countries in the collective security system for North Atlantic treaty states signify? The Asian countries invited to the Madrid Summit share two common features: they are free democracies and traditional allies of the United States. In the presence of the Nordic and Pacific countries, NATO defined China as a “challenge” for the first time. To the rest of the world, NATO declared that China openly crossed a red line by not criticizing Russia’s invasion of Ukraine and turning a blind eye to the criminal act of robbing a sovereign neighbor of its territory with armed forces.

NATO’s new Strategic Concept helps obfuscate China’s calculations. At the height of the tension between Donald Trump and Xi Jinping, China was at ease with a “world divided into three.” Beijing thought the game was worth a try as long as Europe did not fully side with the U.S. even if Washington raised tariffs on China and directly confronted Chinese companies. China could think so for two reasons: its persistent effort to divide Europe and Trump’s unilateralism. Since 2012, China has exerted tremendous effort to improve relations with 16 countries in Central and Eastern Europe, including Hungary, Poland and the Czech Republic.

By launching the “16 plus one” summit, China secured the justification for investments in the logistics, infrastructure and energy fields. As China’s investment swelled in those countries, China’s shadow grew in Europe. A structure where the European Union could not simply cheer Trump America pressuring China through trade was created. Worse, Trump chose to worsen U.S. relations with Europe through rough rhetoric rather than seeking cooperation from Germany and France. As a result, China could play a protracted war with the U.S. as long as Europe was sitting on its hands — even if the U.S.-China trade war escalated into one for global hegemony.

Vladimir Putin’s invasion of Ukraine and China’s siding with Russia forced Europe to defriend China after straddling the fence. As a result, China’s ambition to take the place of America in Asia through a hegemonic contest — and settle with a tri-polar world — has hit a snag. History will remember the Madrid Summit that way. It will also record that South Korea, which emerged as a new trade powerhouse in the 21st century, was there at that moment. In that historical moment, a high-ranking official from the Korean government underscored the need to find alternative markets to China. “An era of boom from the China market is coming to an end,” he confessed.

Is the era of relying on America for security and on China for trade nearing an end? A high-level official publically mentioning the end of such dual relations is the first of its kind since the Sino-U.S. contest gained traction. China still remains Korea’s largest trade partner. Do the official’s remarks signify a dramatic turning point for Korea’s strategy?

Reliance on the U.S. for security and dependence on China for trade was possible when Sino-U.S. relations were not so bad. After establishing diplomatic relations with China in 1972, the United States embraced the country in the U.S.-led international order as it wanted to see China change. But America’s hopes for a transition in China to global standards if it escaped poverty and developed its economy were dashed. After China emerged as the No. 2 economic power surpassing Japan and Germany, the world looked forward to China becoming a responsible country.

As time passed, however, it became clear that China was dreaming a different dream after it became a G2 member. After the U.S. realized that and put the brakes on China’s rise in a full-fledged way, it had ramifications on a number of countries resorting to similar dual paradigms on security and trade, South Korea among them. If government officials believe the double standards are still working, they are either living in a different era or are delusional. At the center of the dichotomous paradigm that has started to fall apart are semiconductors, a mainstay of Korea’s economy.

The Korean Economic Association held a policy symposium in Gangneung over the weekend. The key issue of the debate on Korea’s trade policy was a vague notion so-called Chip 4 alliance. After the U.S. came up with a proposal to build a semiconductor supply chain together with Korea, Japan and Taiwan, Korean media was busy predicting retaliation from China. Under such circumstances, China singled out Korea and warned against joining the anti-China front.

Trade experts who took part in the debate expressed their concerns and discontent over the lead-up to the warning from China. And they shared views about the situation. First, a consultative body will be launched to secure elasticity of the chip supply chain led by America. With leadership in semiconductor technology and equipment, the U.S. requested Korea, Japan and Taiwan — with their strengths in chip materials and manufacturing — join the front. Whether the chain will evolve into an alliance — and which countries will eventually join it — are yet to be determined. The scope of agendas such as R&D and manpower will likely be broadened. A meeting for such discussions will be held by the end of summer. That much was confirmed by trade experts in that symposium.

After being elected president, Joe Biden ordered his aides to find ways to reduce America’s reliance on China for major products. After the Sino-U.S. contest accelerated amid the pandemic, chips, batteries, medical products and rare earth minerals have all emerged as core strategic materials. A technology alliance among democracies was destined to shape up when a report urging America to rebuild supply networks with its allies to reduce U.S. reliance on China for commodities was placed on Biden’s desk in the Oval Office.

There’s no need to worry about China’s retributions in advance. If Chip 4 evolves into an alliance, allies will collectively respond to external retaliations and provocations. No matter how Chips 4 develops, you don’t have to hide the goal of dealing with China risks collectively. Instead, it will be desirable for members to precisely convey their intention to China so that Beijing can try to reduce the risk by itself. Under the dual paradigm of security and trade with China, many countries had to shrug off — or endure — the technology theft, arbitrary discrimination and unfair practices of China. That situation has changed. Chip 4 could be the beginning. A chip alliance including Europe is also possible.

It is wise for the government to prepare measures to cope with U.S. retaliation as much as China’s. The recent Chip bill that passed the U.S. Congress bans foreign companies from investing or reinforcing their production facilities in China for 10 years if they receive U.S. subsidies. That poses a dilemma for Korean companies that heavily invested — or will invest — in both America and China. The same applies to Taiwan, an unrivaled leader in system chips.

Could we resolve the risks from China and America without joining Chip 4? If Korea allows other countries to set the rules without its participation, it will miss an opportunity to highlight its strengths or make up for its weakness. Semiconductors are the mainstay industry of Korea. Building a stable and elastic supply chain in the post-Cold War era is not a job destined for the U.S. but a desperate task for Korea’s survival and prosperity. Technology theft, human resources theft and export bans that threaten stable supplies endanger our economic security. Chip 4 may offer a precious chance to declare a joint front against the move. As the summer is nearing an end, a new wind is blowing.
Translation by the Korea JoongAng Daily staff.