South Korea faces a geo-political dilemma as it is pressured by the US to curb its semiconductor exports to China.
China is the world’s largest semiconductor market and South Korea’s largest trade partner. However as the US increased the pressure on the Chip War, South Korea lost almost 50% of its revenue from sales to China.
China is the most important customer of South Korean semiconductor companies. In 2021, approximately $50 billion in semiconductor revenue came from China. This accounts for more than 39% of South Korea’s semiconductor exports.
However, under the growing restrictions from the US, South Korea reported a 16.6% YoY loss in its total exports. The semiconductor revenue, which is the top most exported item of the country fell by 44.5%.
In 2022 even though the total exports in Korea grew by 6.1 % shipments to China, the country’s main trade partner, declined by 4.4 %. Prices of core semiconductor components like DRAM, NAND, and memory chips plunged as demand weakened and backlogs piled up, which heavily damaged the industry.
South Korean semiconductor companies like Samsung and SK Hynix stand to lose more in this war, as they not only face a major drop in their export revenue but also a reduction of output in their Chinese factories. These companies import various materials, technology, and equipment into China to produce the chips, more than 50% of which are then sold to Chinese customers.
With the newly imposed semiconductor export sanctions, these South Korean firms won’t be able to import anything needed for chip manufacturing into China, which will lead to a reduction in output and loss of business.
Seoul has so far abstained from taking a firm stance in the US-China tech war. The semiconductor battle which started with the US Chips and Science Act has led to global sanctions on exports of chips to China. Countries like Japan, Netherlands, Taiwan, etc have already joined the US and expanded their sanctions.
Now the pressure is on South Korea to follow suit. The South Korean Ministry said that the ban was a burden that they could not avoid. Even though South Korea would lose its biggest trading partner, it still may have to go with the US as America holds patents to some of the key technologies used by Korean companies.
South Korea now faces the biggest decision of whether to choose the US technologies or the Chinese market. However given the geopolitical tensions with North Korea, Seoul cannot afford to lose the US which is its principal military ally.
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