What the US-China chip war means for a critical American ally

 South Korea, which relies heavily on its semiconductor sector for jobs and revenue, is wedged between China and the United States, South Korea’s long-standing ally, in their trade war over technology.Samsung and SK Hynix, the semiconductor titans of South Korea, have spent over $52 billion to build up their operations in China. Business with China has long made up a sizable portion of their sales.But the ties between South Korea’s chip companies and China are under strain from geopolitics.

South Korea, which relies heavily on its semiconductor sector for jobs and revenue, is wedged between China and the United States, South Korea’s long-standing ally, in their trade war over technologyTo curb China’s access to advanced chips that could power its military, Washington has escalated steps to control the sale of such technologies. The Biden administration imposed restrictions last October, raising alarms in Seoul and setting off furious lobbying in Washington to try to minimize damage to South Korea’s semiconductor industry.

A one-year waiver from the export rules that the companies received in mid-October is set to expire soon. While a new waiver is widely expected, uncertainty surrounds how long it might last.“Geopolitical issues have become the biggest risk for companies to manage,” South Korean President Yoon Suk Yeol said in June, speaking at a meeting of government officials and business executives about a national semiconductor strategy. “Companies cannot resolve this problem alone,” he said, calling the competition over chips an “all-out war.”Manufacturing semiconductors requires supply chains that cross national borders, and the efforts to impose new rules on the industry have tested commercial alliances in Asia, Europe and the United States. But few countries have wrestled with the potential economic disruption from trade restrictions as much as South Korea.

Semiconductors account for 20% of South Korea’s exports. Samsung and SK Hynix have long dominated the market for memory chips, which are used in smartphones and laptops to store data. Samsung sold 36% of all memory chips and SK Hynix 25% as of June, according to data calculated from TrendForce, a market research firm.Over the past decade, China has received more than half — at one point almost 67% — of South Korean chip exports. That number dropped to 55% last year, according to a calculation of South Korean government data by The New York Times.Samsung does not provide semiconductor sales numbers for China. Partly because of a drop in demand for chips and China’s economic slowdown, two of the company’s chip-related subsidiaries in China that disclosed their financial information showed a 35% fall in sales of chips and displays in the first half of this year.

One of the most outspoken South Korean politicians on the issue is Yang Hyang-ja, a lawmaker in the National Assembly and a former Samsung executive. She called the country “a victim” in the trade dispute and proposed tax cuts to help chipmakers. Her bill, the K-Chips Act, was passed in March.Samsung uses its facilities in China to produce 40% of its NAND chips, one of two kinds of memory chips that help devices store data. SK Hynix produces 30% of its NAND chips in China and almost half of its DRAM chips, which enable short-term storage for personal computers and servers.