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[Editorial] Tackle tech roadblocks

Clash between US and China over tech sector feared to impact South Korea

By Korea Herald

Published : Nov. 1, 2024 - 05:29

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The confrontation between the US and China over high-stakes technology sectors is expected to intensify next year as a new set of rules set up by the US will restrict investment in China. The question is how the rules will affect South Korea, which maintains close trade relations with both the US and China.

In the short term, such rules are likely to have a limited impact on Korea’s technology industries, according to experts in Seoul, but in the long term, there are shifting factors that could combine to pose serious challenges to the country’s push to export chips and other high-tech products.

Early this week, the US announced it has finalized new rules to limit certain US investment in mainland China, Hong Kong and Macao. The rules, scheduled set to take effect on Jan. 2, aim to restrict three strategic sectors: semiconductors and microelectronics, quantum information technologies and select artificial intelligence applications.

As for the reason behind the restrictions, the US cites the possibility that China will pose a threat to its national security by utilizing the advanced technology developed and refined by American companies.

The US is taking steps to safeguard its national security, especially concerning the next-generation technologies and solutions that can impact its military, cybersecurity, surveillance and intelligence applications.

Given that cybersecurity and AI-driven technology can be transformed into formidable attack tools in the era of tightly interconnected networks, it is understandable that the US does not want its companies to leak their cutting-edge technologies to other countries, particularly China that is ratcheting up its drive to obtain advanced technology that can be used to enhance its military superiority.

For Korea, any change in US restrictions over the investment and shipment of chips in and out of China could translate into negative business and trade factors. One reason is that Samsung Electronics and SK hynix -- the two major Korean chipmakers -- have invested a huge amount of money in their chip production facilities in China. And their chip production business in China faced obstacles as the US imposed restrictions over the supply of US chip equipment.

In October last year, the two chip giants were allowed to supply US chip equipment to their China factories without separate US approvals as a result of an extended waiver granted to the Korean chipmakers, but there were concerns that the US would tighten the rules again.

Against this backdrop, the Korean government and chipmakers remain cautious about the new US rules that will affect the three strategic technology sectors in connection with China from next year.

Morris Chang, founder of chipmaking frontrunner TSMC, said Saturday that global free trade in semiconductors “has died” due to the trade barriers that the US imposed on China, which turned TSMC itself into a battleground, or “truly a turf all major powers want to secure.”

TSMC, which provides chips to Nvidia and Apple, the two most successful winners in the computing sector, was forced to stop shipping chips made for a China-based customer as it turned out to be related to Huawei.

The structure of the global chip industry is indeed shifting at a fast clip. Previously, roles were clearly assigned: the US led chip design; Europe excelled in related equipment; Korea and Taiwan spearheaded chip production for the global market; and China consumed the final chip products. This old chip production structure is now expected to undergo a wave of drastic changes now that the US is pivoting to “friendshoring” to keep China’s technology advance at bay.

Korea has to take steps to tackle sweeping changes in the technology sector and trade relations, and the first step should be focused on working on the long-stalled bills aimed at supporting the domestic chip industry.