Revitalizing gov’t-led industrial policy

Korea’s industry-specific policy helped push the country into the ranks of the world’s 10 largest economies. The resource-poor country bred its heavy chemical industry to strengthen its export power and turned into an IT powerhouse through semiconductor and IT equipment prowess. The government-led industry growth model came under challenge upon the rise of the so-called Washington Consensus based on free trade and the market in the 1990s.

Then came the rise of China, which made the U.S. pivot more inwards to lessen China’s influence and strengthen its own manufacturing capacity instead of relying on outside sourcing. The role of the World Trade Organization as the referee in global commerce was watered down. Due to the significance of chips in the digitalized world, the fight over influence in chip supplies and sovereignty in chipmaking has become intense. The U.S. government is subsidizing $19.5 billion for the construction and modernization of Intel’s chip facility. The U.S. chip company will be taking nearly a third of the $52.7 billion federal subsidy for chip industry under the CHIPS and Science Act, doubling the $6 billion for Samsung Electronics and the $5 billion for Taiwan Semiconductor Manufacturing Co. in return for their construction of chip facilities in America. The discrepancy places the Asian players at disadvantageous position.

The Yoon Suk Yeol administration has been trying hard to bolster the country’s chip competitiveness, but it lags far behind its competitors. The temporary tax break for chip facility investment matured late last year and the so-called K-CHIPS Act to provide incentives for chip investment also end this year. The governing People Power Party vows a stronger revision to the K-CHIPS Act and the opposition Democratic Party also promises to extend the cut in corporate income tax on large companies’ investments in chips and other strategic technologies ahead of the April parliamentary elections. The government and legislature must break the taboo over favoritism towards big companies to fuel new life into industrial policy.