China Is Not America’s Only Target

On Oct. 7, the U.S. Department of Commerce announced restrictions on the export of semiconductors to China. The measure bans the sale of U.S. semiconductor equipment to Chinese businesses and provides that equipment brought to foreign companies in China will be individually reviewed. It also regulated the export of semiconductor chips used in artificial intelligence and supercomputers to China. Five days later, there was good news. The U.S. granted Samsung Electronics and SK Hynix, which have production plants in China, a one-year grace period from the semiconductor export controls.

Will South Korea Benefit from This?

Over the next year, the two companies' factories in China will receive semiconductor equipment without having to obtain U.S. approval. Many people voiced concern over how well the semiconductor industry did compared to the electric vehicle industry. This outcome is certainly better than the Inflation Reduction Act, which limits battery subsidies to American-made products and which did not receive any grace period. It did not feel like a "stab in the back" to companies that promised large-scale investments. In addition, there is no criticism that the semiconductor industry helplessly fell victim to the U.S., unlike when the IRA was passed.

Some predict that Korean companies will benefit from the restrictions as they did from U.S. sanctions against Huawei. This is because U.S. regulations can prevent the growth of Chinese semiconductor companies such as Yangtze Memory Technologies Corp. They argue that the bipolarity of Samsung Electronics and SK Hynix in the semiconductor industry will be further solidified.

But is that so? Most experts think otherwise. The biggest reason lies in the list of items put under regulation. Initially, the U.S. government did not want to limit the export of memory semiconductors. It tried to focus on regulating fields in which Chinese companies have relative competence, such as foundry and semiconductor design (fabless manufacturing). However, the actual list of regulated items included not only logic chips, which are system semiconductors, but also DRAMs of less than 18 nanometers and NAND flash chips with 128 layers or more.

The one-year grace period is also a problem. If it is not extended after a year, Samsung Electronics and SK Hynix will have to report every single one of their business plans to the U.S. government. If the U.S. decides to block exports of the latest equipment, their factories in China could become inoperable. In fact, SK Hynix has already withheld bringing extreme ultraviolet (EUV) exposure equipment to China last year due to pressure from the U.S.

There is something else that the Korean semiconductor industry is most concerned about: the growth of American businesses. The U.S. government's semiconductor regulations are primarily aimed at deterring China. But their bigger purpose is to foster the U.S. semiconductor industry. Although it is stated to be for establishing a stable domestic supply chain, the bill's ultimate goal is to regain leadership in the semiconductor industry, which was taken over by Korea and Taiwan.

Our Competitor Is the U.S., Not China

It is for the same reason that the U.S. Congress passed the CHIPS and Science Act. Coincidentally, U.S. semiconductor companies are coming up with unprecedented investment plans. Micron Technology, Inc., the world's third-largest memory chip maker, announced last month that it would spend $100 billion in New York to build a high-tech memory megafab. Intel started construction on two plants in Arizona after announcing the resumption of its foundry business last year. It also invested $20 billion in Ohio last month to build another foundry plant. Officials from the Korean semiconductor industry have been stating that their real competitor is the U.S., not China. The latest news certainly adds credibility to their claim.