Traveling to South Korea as part of a “Next Generation Leaders” delegation, sponsored by the National Bureau of Asian Research (NBR) and the Korea Foundation, highlighted both the robustness of the US-Republic of Korea (ROK) alliance and the challenges facing democracies in maintaining competitiveness against the People’s Republic of China’s (PRC) efforts to dominate emerging technologies.
Despite a shared commitment with the United States to countering the PRC, the ROK’s concerns regarding US policy and legislation like the Inflation Reduction Act (IRA), CHIPS Act, and semiconductor export controls echoed similar apprehensions in Europe. The US-ROK experience shows that unilateral technology policies can be a double-edged sword, capable of jolting allies into action but also risking diplomatic rifts. A more unified approach is needed to promote and protect allied tech sectors.
ROK’s Crucial Position in the Global Technology Supply Chain
The ROK is a crucial node in the global semiconductor industry. Samsung and SK Hynix produce 73% of the global short-term memory market and 51% of the long-term memory market. ROK also produces 37% of all processing chips at the 10 nanometer (nm) node and lower; Taiwan makes the rest. These chips are integral to advanced artificial intelligence programs, and have been at the heart of US export controls toward the PRC.
However, the ROK’s chip industry is vulnerable because it is dependent on the PRC in two ways. First, the PRC is a major market for ROK chips. Semiconductors account for 20% of the ROK’s exports, and 60% of those chip exports go to the PRC. These exports represent a significant revenue source—for instance, SK Hynix, a major ROK chipmaker, saw nearly 47% of its revenue coming from the PRC at its peak in 2019. This figure dropped to 27% last year, yet the PRC remains a crucial market.
Second, the PRC is a major site of production for ROK chipmakers. SK Hynix produces 40% of its DRAM chips in Wuxi. Samsung produces 40% of its NAND flash chips in Xi’an. Disruption to these facilities would have a ripple affect across the globe, as the Wuxi DRAM facility represents 13% of global DRAM production capacity, and the Xi’an facility represents 15% of global NAND flash production capacity.
ROK policymakers have traditionally exercised caution in their approach to the PRC, because it has used its economic leverage to punish South Korea before. Unsurprisingly, 80% of South Koreans have an unfavorable view of the PRC. Most Koreans see the United States as a strategic partner in countering the PRC’s technology ambitions. When polled, 91% of South Koreans surveyed would prefer to align with the United States over the PRC.
Yet US policies deployed to counter the PRC in recent years had initial unintended consequences for those Korean industries also under threat from the PRC. Many Korean observers criticized the IRA’s tax credits for US-sourced electric vehicles (EVs) as a “betrayal” which discriminated against Korean auto companies in the US market. Similar complaints were leveled at restrictive requirements for CHIPS Act subsidies, and concerns that US export controls could shut down SK Hynix and Samsung’s PRC-based fabs. The United States provided those facilities waivers from controls, avoiding a major negative shock to the ROK’s economy.
Two Lessons for Policymakers
The US-ROK experience has two lessons for US policymakers as they formulate a doctrine for US techno-economic statecraft.
Unilateral technology measures can be effective when they shape the geopolitical landscape and shake partners out of trepidation and complacency. Despite initial ROK reservations, US-ROK working groups are now collaborating on formulating export controls, coordinating a long-term exit strategy for the ROK’s PRC-based fabs, and discussing how to dovetail domestic industrial policies to friendshore critical industries. The ROK has invested billions in new battery, EV, and chip manufacturing plants in the United States.
Deeper coordination is needed, especially on industrial policy. Some allies initially perceived the IRA and CHIPS Act as protectionist trade measures that would negatively affect allied industries. Since then, the ROK, the EU, and Taiwan have all passed their own CHIPS acts. Yet competing industrial policies countering PRC coercion risk a subsidy race that can increase trade tensions, inefficiencies, and also divide allies.
Deeper coordination among allies on industrial policies could preempt trade conflicts. One effective approach could be to provide a platform for direct dialogue among legislators responsible for crafting and funding these policies. Currently, while various forums exist for discussing trade and technology, few prioritize direct communication between legislators from different allied nations. More robust engagement with counterparts in allied countries could equip policymakers with a deeper understanding of the diplomatic implications involved in domestic industrial policies. This would be a key step towards allied industrial strategy.