To survive, Korea must overcome geo-economic challenges
Many pundits compare the ongoing U.S.-China competition for global hegemony to a new Cold War. Because of its geopolitical uniqueness, Korea is one of the countries that most directly feels the heat of the G2 rivalry. And nowhere is this more visible than in the intensifying war of nerves over the semiconductor industry.
Two latest media reports indicate the U.S.-China chip bout has entered the second round.
Last Thursday, the New York Times reported that U.S. and foreign semiconductor companies had set off a lobbying frenzy for a larger slice of the pie from Washington's $39 billion (51 trillion won) subsidy for chip manufacturers. Two Korean makers with a heavy presence in America ― Samsung Electronics and SK Hynix ― will also go all out to be included in the list of beneficiaries.
However, as a Korean newspaper described it, the cash will likely be a "poisoned carrot." The U.S. government will dole out the funds on the condition that recipients restrict their investments in China for a decade.
On the same day, Alan Estevez, undersecretary of commerce for industry and security, said the U.S. government would limit the level of computer chips produced by Korean companies in China.
If the official's words become a reality, it will deal a critical blow to Korea's semiconductor exports to China. Semiconductors account for 20 percent of Korea's total exports and China buys 40 percent of Korean-made chips. Since semiconductors need continuous upgrading, a "cap on the levels that they can grow to in China" could be a death knell for shipments to China. Another Korean daily said Korean chipmakers may have to "withdraw from China" in the worst-case scenario.
That must never happen, however.
It also explains why Korea has been equivocal in joining the Chip-4 alliance alongside the U.S., Taiwan, and Japan against China. Unlike the three other countries with distinct security and economic priorities, Korea has complicated geo-economic concerns. So do most private companies underneath their governments' ostensible commitments. Henceforth, the complex uniting and splitting between businesses of even competing countries. For instance, Ford Motor recently drew Washington's ire by announcing a partnership with China's CATL for a car battery plant.
There will be limitations to alienating or decoupling with the world's No. 2 economy to create a new global supply network. Different countries and companies should have different interests. Perfect teamwork between the public and private sectors is crucial for Korea to weather new geo-economic challenges. But the current developments point the opposite way.
For instance, Samsung Electronics and SK hynix have made, and will make, several billion-dollar investments in America and China. However, Koreans have not heard about similar plans in their country, causing concerns about an industrial hollowing out. This happens when others, including Europe, Japan, and Taiwan, seek more production at home.
Bureaucrats and politicians are even more clueless. The finance ministry, bent only on fiscal soundness, is too stingy to provide financial support. The governing party is mired in factional feuds between President Yoon Suk Yeol's cronies and is political opponents. Opposition leaders ask why the nation should provide more benefits for super-rich companies. But antipathy for family-run conglomerates is one thing and sound industrial policy is another. As they have done for decades, Koreans must again admit their love-hate relationship with the chaebol, especially in cost-heavy sectors like semiconductors.
The government must also tackle two structural problems at home ― talent and technology.
The London-based Economist magazine recently predicted that Korea's semiconductor industry will face a shortage of at least 30,000 workers in the next decade. The Hankyoreh newspaper reported last week that all successful applicants for semiconductor departments at Korea's most prestigious universities gave up their enrollment to enter medical schools. The government must do all it can to reverse this trend, while helping Korean companies, now remaining as memory chipmakers, turn to logical chips and machinery.
To orchestrate this enormous task, Yoon must be the Republic of Korea's chief executive, not its "No. 1 salesman."
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