By John Burton
It may not be surprising that, among the topics that will be discussed between President Moon Jae-in and President Joe Biden at their scheduled summit meeting in Washington, D.C., on May 21, will be North Korea, climate change and cooperation on COVID-19 vaccines. But more noteworthy is that semiconductors will also be high on the agenda.
This fact is an acknowledgement that Korea has become a semiconductor superpower, and its importance as a supplier has been highlighted by the current global shortage of chips.
President Moon was right in recently describing the semiconductor sector as a core national strategic industry that could determine the future of the economy. Korea's leadership in the semiconductor industry gives it unprecedented power in commanding global supply chains. Just as countries that produced oil ― black gold ― dominated the 20th century, so could countries producing chips ― digital gold― dominate the 21st century.
It is for this reason that the U.S. is now focusing on semiconductors as a key bilateral issue with Korea, when Biden is pushing for aggressive investments in chip manufacturing at home. Washington is worried that the U.S. is falling behind chip manufacturing, as production is becoming more concentrated in Korea and Taiwan, both of which are facing increased geostrategic threats from China.
The three leading global chip producers are Samsung Electronics in Korea, TSMC in Taiwan and Intel in the U.S. Meanwhile, China, which is five to ten years behind in development, is spending heavily in a race to catch up as the U.S. imposes bans on technology transfers.
The issue has taken on urgency due to a slowdown in chip production since the start of 2021, which temporarily closed car plants from the U.K. to Korea. This slowdown highlighted how the internet-connected world has become increasingly dependent on chips. Semiconductor demand will only grow, since semiconductors power everything from smartphones and electric vehicles to industrial machines and artificial intelligence.
This situation bodes well for Samsung and its smaller domestic rival, SK hynix, in one sense, since the industry concentration gives them increased pricing power. Higher profits means they have the capital to invest in ever more costly chip plants, further cementing their dominance. Samsung is planning to spend more than $100 billion on its chip business over the next decade.
But their industry dominance also underscores their political importance in the escalating Sino-American technological cold war, when an estimated 80 percent of the world's chip-making capacity is in Asia. President Biden has called for strengthening America's semiconductor supply chain, and money has been allotted in his giant infrastructure plan to build more chip plants in the U.S.
As a result, pressure is growing on Samsung to add at least one more American chip plant to one it is already operating in Austin, Texas, in return for U.S. subsidies.
It was recently revealed that Samsung is considering building a new $17-billion chip plant in either Texas, Arizona or New York by the end of 2023.
The move does not reflect direct pressure from Washington, but rather demands from some of Samsung's biggest American clients, including IBM, Qualcomm and Tesla. They desire a secure site in the U.S., and want access to a more advanced facility rather than Samsung's aging plant in Austin.
Samsung also needs a new leading-edge plant in the U.S. to better compete against its biggest and fiercest rival, TSMC, which is building a facility in Arizona by 2024 to improve delivery times to customers. Initial plans suggest that the Samsung plant will be bigger than the TSMC Arizona facility.
The diversification of Samsung chip plants outside of Korea may make commercial sense, but it poses a potential threat to the Korean economy. The manufacturing of semiconductors has been cited as a key reason why the Korean economy has stayed buoyant during the COVID-19 pandemic over the past year. The relocation of at least one big plant overseas will mean less business for affiliated sectors at home.
Korea's economic dependence on semiconductors also presents it with a geostrategic dilemma, as Seoul seeks to navigate rising Sino-American tensions, since China is also a big customer of Korean chips. With Washington encouraging Samsung to invest in the U.S., will Beijing apply similar pressure on Samsung to build more plants in China?
Samsung's sole semiconductor factory in China, which it recently expanded, makes only memory chips, unlike the cutting-edge chips that it produces in Korea and plans to produce in the U.S.
Pressure from both the U.S. and China could increase. Washington might tighten export controls that would prevent any foreign chipmaker, including Samsung, from using American equipment to produce chips for Chinese clients, as already is the case for Huawei, the Chinese telecom giant. Meanwhile, Beijing could threaten not to meditate on the North Korean nuclear issue, if Korea refuses to play ball on the chips issue.
John Burton (johnburtonft@yahoo.com), a former Korea correspondent for the Financial Times, is a Washington, D.C.-based journalist and consultant.
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This fact is an acknowledgement that Korea has become a semiconductor superpower, and its importance as a supplier has been highlighted by the current global shortage of chips.
President Moon was right in recently describing the semiconductor sector as a core national strategic industry that could determine the future of the economy. Korea's leadership in the semiconductor industry gives it unprecedented power in commanding global supply chains. Just as countries that produced oil ― black gold ― dominated the 20th century, so could countries producing chips ― digital gold― dominate the 21st century.
It is for this reason that the U.S. is now focusing on semiconductors as a key bilateral issue with Korea, when Biden is pushing for aggressive investments in chip manufacturing at home. Washington is worried that the U.S. is falling behind chip manufacturing, as production is becoming more concentrated in Korea and Taiwan, both of which are facing increased geostrategic threats from China.
The three leading global chip producers are Samsung Electronics in Korea, TSMC in Taiwan and Intel in the U.S. Meanwhile, China, which is five to ten years behind in development, is spending heavily in a race to catch up as the U.S. imposes bans on technology transfers.
The issue has taken on urgency due to a slowdown in chip production since the start of 2021, which temporarily closed car plants from the U.K. to Korea. This slowdown highlighted how the internet-connected world has become increasingly dependent on chips. Semiconductor demand will only grow, since semiconductors power everything from smartphones and electric vehicles to industrial machines and artificial intelligence.
This situation bodes well for Samsung and its smaller domestic rival, SK hynix, in one sense, since the industry concentration gives them increased pricing power. Higher profits means they have the capital to invest in ever more costly chip plants, further cementing their dominance. Samsung is planning to spend more than $100 billion on its chip business over the next decade.
But their industry dominance also underscores their political importance in the escalating Sino-American technological cold war, when an estimated 80 percent of the world's chip-making capacity is in Asia. President Biden has called for strengthening America's semiconductor supply chain, and money has been allotted in his giant infrastructure plan to build more chip plants in the U.S.
As a result, pressure is growing on Samsung to add at least one more American chip plant to one it is already operating in Austin, Texas, in return for U.S. subsidies.
It was recently revealed that Samsung is considering building a new $17-billion chip plant in either Texas, Arizona or New York by the end of 2023.
The move does not reflect direct pressure from Washington, but rather demands from some of Samsung's biggest American clients, including IBM, Qualcomm and Tesla. They desire a secure site in the U.S., and want access to a more advanced facility rather than Samsung's aging plant in Austin.
Samsung also needs a new leading-edge plant in the U.S. to better compete against its biggest and fiercest rival, TSMC, which is building a facility in Arizona by 2024 to improve delivery times to customers. Initial plans suggest that the Samsung plant will be bigger than the TSMC Arizona facility.
The diversification of Samsung chip plants outside of Korea may make commercial sense, but it poses a potential threat to the Korean economy. The manufacturing of semiconductors has been cited as a key reason why the Korean economy has stayed buoyant during the COVID-19 pandemic over the past year. The relocation of at least one big plant overseas will mean less business for affiliated sectors at home.
Korea's economic dependence on semiconductors also presents it with a geostrategic dilemma, as Seoul seeks to navigate rising Sino-American tensions, since China is also a big customer of Korean chips. With Washington encouraging Samsung to invest in the U.S., will Beijing apply similar pressure on Samsung to build more plants in China?
Samsung's sole semiconductor factory in China, which it recently expanded, makes only memory chips, unlike the cutting-edge chips that it produces in Korea and plans to produce in the U.S.
Pressure from both the U.S. and China could increase. Washington might tighten export controls that would prevent any foreign chipmaker, including Samsung, from using American equipment to produce chips for Chinese clients, as already is the case for Huawei, the Chinese telecom giant. Meanwhile, Beijing could threaten not to meditate on the North Korean nuclear issue, if Korea refuses to play ball on the chips issue.
John Burton (johnburtonft@yahoo.com), a former Korea correspondent for the Financial Times, is a Washington, D.C.-based journalist and consultant.
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