Korea, form a special chip committee!

Yang Hyang-ja
The author is an independent lawmaker and head of a special committee on chip industry competitiveness promotion.

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) on Oct. 7 issued sweeping new export controls targeting chips and chip equipment headed for China. The controls aim to prohibit unlicensed shipments of chip equipment and integrated circuits, such as graphic processing units (GPU), to China to restrict the country’s ability to produce advanced chips, develop supercomputers and make further progress in the chip business.

When the U.S. started the chip war, it was expected to employ all policy means to groom the chip industry at home and deepen pressure on China. Shortly after inauguration, U.S. President Joe Biden issued an executive order to investigate supply chains of U.S. manufacturers. His move heralded a stronger push in the campaign to rebuild the U.S. chip industry his predecessor Donald Trump had begun.

In July, the Chips and Science Act earmarking $52 billion to build chip supply chains in the U.S. with subsidies and tax incentives passed with bipartisan support. Washington unleashed one policy on chips after another before Korea, whose economy heavily relies on chip trade, could respond. Others are moving fast to catch up with the trend. Japan, Taiwan and the European Union have pledged colossal investments into the chip segment and are fiercely vying to draw chip facilities to their turf.

Despite the importance of the chip industry to the national economy and the future, Korea sadly has not done enough. A bill on strengthening chip competitiveness was drawn up by a special semiconductor committee of the People Power Party (PPP) and put forward to the National Assembly in early August. But review is yet to begin. The Committee on Strategy and Finance has not even formed a subcommittee to discuss tax incentives for chip investment. Much of the chip support in the 2023 budgetary outline has been denied or scaled back.

Compared with the intense competition abroad to command chip supremacy and self-sufficiency, Korea appears to be too laid back. Legislators and policymakers could think the chip contest is restricted to America and China rather than being an urgent survival issue for the country.

But Korea cannot avoid the widening battle. The U.S. export curbs on chip equipment to China is an example. Washington has granted one-year grace periods for companies like Samsung Electronics and SK hynix, but Korean memory chip operations in China will be affected after the grace period ends. Due to the de facto ban on GPU chip exports to China, orders from fabless chip makers like Nvidia and AMD also could fall.

The global chip contest may be between the two superpowers for now, but it could expand to Korea. Friends are not forever when it comes to key industries and technology, given the U.S. sanctions on Japanese chip exports that brought about an epic fall in the Japanese chip industry, which dominated global markets until the 1990s.

Japan monopolized the global chip market in the 1980s and 90s by commanding 80 percent of the dynamic random access memory (DRAM) market. To protect its waning industry and fix its widening deficit with Japan, the U.S. forced the appreciation of the Japanese currency through the 1985 Plaza Accord and slapped a 100 tariff on Japanese computers, chips and other high-tech imports based on Section 301 of the Trade Act of 1974, not to mention drawing concessions from Japan not to sell chips below a certain price. Japanese chipmakers slowly lost their competitiveness.

In 1990, six Japanese names, including the top three — NEC, Toshiba and Hitachi — dominated the business. Samsung Electronics and SK hynix have replaced Japanese names.

The decline of the Japanese chip industry may have been the gain for Korean chipmakers, but the U.S. always moves to protect its domestic industry. After it defeats China, America could look for a next competitor to eliminate.

On semiconductor technology, the U.S. will find Korea and Taiwan its biggest competitors. Intel has managed to advance the chip fabrication process to 7 nanometers. But Korea and Taiwan have galloped away to the 3 nanometer process. If the U.S. manages to rebuild the downstream industry, whether it will stay favorable to Korean chips remains uncertain.

While Korea remains in the periphery amid the U.S.-China chip contest, the U.S. has been accelerating efforts to realign chip value chains. It has subsidized U.S. memory maker Micron — which has been assembling chips in Japan, Taiwan and Singapore — to build a major plant in the state of New York. U.S. funding does not stop in enticing American entities.
Samsung Electronics has filed for the chip incentive program in Texas to build a $17 billion foundry, pledging a near $200 billion in spending over the next 20 years. If not for generous incentive programs, the chipmaker could not have thought of making such a massive investment in the U.S. Korean politicians must ruminate on the lead-up to its investment. Due to their dilly-dallying, Korean companies are helping U.S. restore its chip value chain. There is the potential risk of Korea losing its most prized technology supremacy.

The macroeconomic conditions also have turned unfavorable for Korean companies. The dollar, which traded at 1,200 won at the beginning of the year, now hovers above 1,400 won. Raw materials were already pricey. But the cheap currency has raised costs for Korean companies by about 20 percent.

A cheap currency usually benefits exporters. But since currencies around the world have all weakened against the dollar, the formula does not work. Big exporters are no longer safe. Nevertheless, when the issue of chip support comes up, legislators respond with kneejerk opposition to favoritism towards large companies. A new perspective is need now.

The chip industry is a highly closed field as economies of scale define competitiveness. Chipmaking therefore can only be attempted by large companies. Other countries are no different. Only when there is a reliable large company, the downstream industry can prosper. Taipei regards TSMC as “the sacred mountain protecting the country.”

The environment around the Korean chip industry has become more hostile than 2019, when Japan slapped export curbs on Korea-bound shipments of materials needed for chipmaking. The presidential office, government and politicians moved in unison to lessen the impact on the local chip and component industry. I vice-chaired a special committee on the Japanese economic offensive to discuss measures with the industry, engineers and the government. As a result, support measures for the materials, parts and equipment value chain were drawn up.

We are at the turning point of defending the supremacy or losing it in chipmaking. What is the most important is to maintain an unrivalled technological edge in chipmaking. The government must assist with manpower, incentives and systems so they are on par with rivaling countries to make Korean chips indispensable in the global high-tech ecosystem.

The country needs to set up a permanent special committee on chip support, comprised of experts from the government, legislature, industry and academics. The political sector is often unaware of the urgency in the industrial field. The standing committee must bring in experts from the field.
The special committee must keep up with the international trend and pay close attention to industrial setbacks to devise the best possible strategy. To be of practical and effective help, industry experts must lead the group. There is not much time left.

The country urgently needs to form a special committee on semiconductors for the prosperity of our future generations.

Translation by the Korea JoongAng Daily staff.