US hits out at South Korea for halting its chip trade with China

South Korea and China have a very strong trade relationship regarding semiconductors. Strong semiconductor trade flows between China and South Korea are now under pressure as Washington seeks to cut Beijing out of the global tech supply network. At the same time, analysts say the US stance will hurt Korea’s chip titans.

Seoul has not yet joined the US-led Chip 4 alliance, an initiative with Tokyo and Taipei aimed at undermining China’s role in chip supply chains. South Korea has also not followed Japan and the Netherlands in restricting exports of chip-making technology to China. Still, the ever-booming memory chip trade between the two Asian neighbors is showing signs of decline.

“If the US imposes sanctions on Korean companies to do business in China, it will be difficult to go against them,” said Kim Yang-peng, a senior researcher at the Korea Institute for Industrial Economics and Trade. This is primarily because the US holds patents on some key aspects as well as some of the key technology that is essential to the chip-making process.

China’s push for semiconductor self-sufficiency has reduced imports of many Korean products, increasing the country’s trade deficit. According to a report in the South China Morning Post, China’s imports of integrated circuits are set to fall 15.3 percent in 2022 for the first time in 18 years, in dramatic contrast to double-digit growth in previous years.

At a time when total exports to Korea are set to grow 6.1 percent in 2022 to an all-time high, shipments to China, the country’s main trading partner, declined 4.4 percent, the report cited Korean customs data.

However, Korean chip makers such as Samsung Electronics and SK Hynix are finding it difficult to increase production in China as a result of Washington’s restrictions on access to modern chip manufacturing equipment in China.

These early signs of decoupling may become more visible in 2023, when Seoul will be forced to match its semiconductor trade and investment policies with Washington’s, given that the US is Korea’s major military ally.

After the Biden administration tightened export controls on advanced chip design and manufacturing technologies to China last October, Korean chip makers were given a one-year grace period to continue importing equipment needed for their existing facilities in the mainland.