[Column] All’s fair in the chip war

Lee Sang-ryeol
The author is an editorial writer of the JoongAng Ilbo.

“I have never heard of it in economics literature. I can’t figure out where it came from — a socialist, capitalist, or communist country,” said the late Samsung Group chairman Lee Kun-hee, referring to the so-called “excess profit-sharing” proposed by Chung Un-chan, a former prime minister who headed the Commission on Shared Growth for Large and Small Companies, under president Lee Myung-bak in March 2011. Since Lee’s remark, Samsung found itself in an awkward position with the conservative government. The proposal spiked controversy over how to calculate the surplus profit. The idea eventually fizzled amid criticism about the apparently anti-market concept involving state intervention.

But the idea has revived in the United States. Washington wants a foreign company receiving a federal subsidy of more than $150 million from the $53 billion CHIPS and Science Act for their facility investments in the U.S. to share a portion of their unexpected profit. Few would have imagined that such an idea could come out of the birthplace of market economy.

U.S. Commerce Secretary Gina Raimondo poses before a signboard signaling the restoration of the U.S. supremacy over the chips. [UPI/YONHAP]

“We are not writing blank checks to any company that asks,” said Commerce Secretary Gina Raimondo. The Department of Commerce said the collection won’t exceed 75 percent of the subsidy the company receives. The plan may appease American taxpayers, but it comes at the expense of the interests of the investing companies and their shareholders. We may have overestimated the U.S. to be the guardian of market economy principles.

Whether it be under Republican or Democratic presidency, the U.S. policy consistently placed national interest first. The Ronald Reagan administration enforced a semiconductor agreement with Japan in 1986 when Made-in-Japan chips — namely, memory — dominated the global market and drove U.S. chipmakers out of the business. The deal included many discriminative clauses for Japanese players, including a mandate to disclose their manufacturing costs.

The keystone of the agreement was to compel Japan to raise the share of U.S. chips in the country to 20 percent from 10 percent. The biased deal that goes against the basic free market principle by enforcing the purchase of U.S. products in another country eventually led to the demise of the Japanese chip industry and revived the U.S. chipmaker. The doom of Japanese players was a boon for Korean latecomers. Samsung Electronics’ memory chip business began to make profit after Japanese chips were barred from selling cheaply. Through aggressive investment for technology advance, Samsung ascended to the top in the memory sector.

The CHIPS and Science Act has a host of unfavorable terms for Korean chipmakers aside from the discriminative excess profit-sharing clause. The legislation aims to create at least two large-scale chip fabs to produce advanced memory chips going into cars, medical devices and others “on economically competitive terms,” according to the U.S. Commerce Secretary.

The U.S. stayed uninterested in chip manufacturing since it was successful in demoralizing Japanese players in the 1980s. As a result, the current global value chain arrangement over chips was established — with the U.S. leading in chip designing, South Korea in memory production and Taiwan in consigned chip foundry work. U.S. memory player Micron Technology is still in the game, but trails behind Samsung Electronics and SK hynix of Korea. Washington wants to change that. The Commerce Department is making sure that the development of the next-generation memory chips needed for supercomputing takes place in America.

It was Joe Biden’s administration that pitched chip alliance with Korea. The U.S. has been slamming curbs on China to deter its advance in chips. Samsung Electronics and SK hynix have pledged multibillion-dollar investments in the U.S. But the U.S. wants more: it wants the R&D, design and production of advanced chips to take place on its home turf.

The global value chain on which Korea’s chip supremacy has been built will be critically shaken. Korea’s edge in advanced chip technology and its strategic importance also will be threatened. Rep. Yang Hyang-ja — an independent who once worked as an executive at Samsung Electronics — observed that the U.S. showed its claws faster than expected. There are no friends in a war. But do we really have a plan to survive in the uphill battle?