Could South Korea be torn in the US-China chip war again?

• Pressure ramps up for South Korea over chips.
• Meeting produces different accounts of agreement.
• US proposal creates “unreasonable burden” on investment.

For South Korea, the room for strategic ambiguity seems to be narrowing, and while official language remains vague, it looks like Seoul is once again caught between the two superpowers, US and China. Despite all the back and forth, the South Korean government is still under tremendous pressure to pick a side in the growing technological rivalry between its military ally and its largest trade partner. 

When the US-led Chip 4 Alliance began taking shape earlier this year through preliminary meetings, the South Korean government’s verdict was clear. However, a few incidents have proved that South Korea has yet to adopt a stronger tone with either China or the US.

At last week’s 2023 APEC Trade Ministers meeting, Chinese Commerce Minister Wang Wentao met South Korea’s Trade Minister Ahn Duk-Geun, and the position of the two countries was clear from what was said – and what wasn’t.

China said it agreed with South Korea to strengthen dialogue and cooperation on semiconductor supply chains.

South Korea did not mention discussions between the trade chiefs about the chip sector.

Seoul only noted that Ahn requested support from Beijing to stabilize the supply and demand of critical raw materials and parts. According to Wang, the talks, on the sidelines of the APEC meeting in Detroit, also included an exchange of views on maintaining the stability of the industrial supply chain and strengthening cooperation in bilateral, regional, and multilateral fields.

According to a separate statement, Ahn specifically asked Wang also to support forming a “predictable” business environment for South Korean companies operating in China. 

Where is South Korea in the US-China tech war?

In February this year, the meeting between US, South Korean, Japanese, and Taiwanese senior officials took place virtually, following months of coordination. For context, the Chip 4 initiative is designed to stabilize semiconductor supply chains. Besides the US, the envisioned partnership includes Japan, a leader in semiconductor-manufacturing materials; Taiwan, the top producer of cutting-edge chips; and South Korea, whose output capacity is second only to Taiwan’s.

But of course, the initiative is also seen as an attempt to freeze out China, which is racing to advance its chipmaking technology. The push has undoubtedly put South Korea, which has long focused on maintaining a balance between its economic ties with China and its security cooperation with the US, in a difficult position.

While South Korean President Yoon Suk-you considers the bilateral alliance with the US a priority and has expressed an interest in Chip 4, Beijing was also ramping up pressure on Seoul. In August, Chinese Foreign Minister Wang Yi even told his South Korean counterpart Park Jin that the two countries should maintain their independence and freedom from external interference.

To put into context how prominent the Chinese market is for South Korea, China accounted for 24% of South Korea’s total trade in 2021, making it South Korea’s largest trade partner.

Around US$76.8 billion, or 60%, of South Korean semiconductor exports went to China that year, as did many chemicals, machinery, and other vital products. In short, China’s higher tariffs and other sanctions could deal a heavy blow to South Korea’s core industries.

For semiconductor players, it is equally detrimental. Around 20% of Samsung Electronics’ memory chips are produced in the Chinese city of Xi’an, while SK Hynix operates a plant in Wuxi and acquired Intel’s Dalian plant in 2021. It now produces 40% of its chips in China. 

Before last week’s talks between Wang and Ahn, Seoul challenged Washington on its proposal to limit the expansion of production by South Korean semiconductor manufacturers in China, saying it created “an unreasonable burden” on investment. The US Commerce Department in March unveiled its proposed “national security guardrails” for the Chips Act.

The guardrails ban companies receiving federal subsidies from expanding output beyond specific narrow caps in “foreign countries of concern” – specifically, mainland China, Russia, Iran, and North Korea.

How the combination of diplomatic and trade pressures will shake out for South Korea is as yet uncertain. But it feels increasingly as though the country cannot afford to sit in the middle of the tug-of-war of industrial agendas for very much longer.