Facing US Pressure To Build Semiconductor Plants, Korea Must Negotiate Strategically

On Sept. 4, a high-ranking official at the Blue House* said that the semiconductor issue would be on the table in talks over South Korea’s investment in the United States. The comment is noteworthy because it came as Commerce Secretary Howard Lutnick was demanding that Samsung Electronics and SK Hynix build memory chip plants in the United States. This is a new demand that was not included in the memorandum of understanding signed last November, in which South Korea agreed to invest $350 billion in the United States. The United States should understand that continually adding new demands will only destroy trust between allies.

The senior Blue House official said, “It is true that semiconductors are included in the list of issues to be discussed regarding investment in the United States.” Earlier, on Sept. 2, Lutnick said semiconductors would be subject to a “targeted, thoughtful tariff policy,” with tariff exemptions for companies that manufacture in the United States and tariffs imposed on those that do not. He also confirmed reports that finished products containing semiconductors, including laptops, would face higher tariffs.

Last year’s tariff agreement contained no mention of constructing memory chip plants. However, the agreement included a provision stating that “the United States intends to provide terms for such … tariffs on Korea that are no less favorable than terms that may be offered in a future agreement covering a volume of semiconductor trade at least as large as Korea’s, as determined by the United States.” At the time, this was interpreted as referring to the tariff rate that would be imposed on Taiwan.

But in January of this year, Taiwan promised to invest $500 billion in the United States in exchange for a reduced reciprocal tariff rate of 15%. In addition, Taiwanese companies in the process of building new plants in the United States would be permitted to import up to 2 1/2 times their production capacity without paying tariffs. Companies with completed plants would be allowed to import up to 1 1/2 times their production capacity without tariffs. But at the time of the agreement, South Korea did not consent to adding memory chip plant construction to the deal.

The United States is pursuing the establishment of semiconductor manufacturing bases within its borders, as semiconductors are a key element in securing dominance in artificial intelligence. President Donald Trump has even set a goal of increasing semiconductor self-sufficiency from around 10% to 50% during his term. South Korea must prepare thoroughly, as the United States will most certainly put immense pressure on us. We are not without leverage. If high tariffs are placed on memory chips, the burden will first fall on U.S. Big Tech. The United States is already experiencing “chipflation,” in which soaring prices for dynamic random-access memory chips are driving up the prices of finished products, and data center companies are facing cash-flow pressure. Congress’ intervention when Apple intended to use Chinese-made memory chips, encouraging the company to use products from U.S. allies instead, shows South Korea’s strategic value. We must persuade the United States that high tariffs would hurt both its competitiveness in AI and its approach to China. We must create a “win-win” model, in which South Korea provides the United States with a stable supply of memory chips in exchange for tariff exemptions.

*Editor's note: The Blue House is South Korea's executive office and residence of the president.