Korea in bind over US-led chip alliance

President Yoon Suk-yeol and U.S. President Joe Biden take a look around Samsung Electronics' semiconductor factory in Pyeongtaek, Gyeonggi Province, under the guidance of Samsung Vice Chairman Lee Jae-yong, May 20. Yonhap

'Korea's absence may benefit Japan's resurrection in chip sector'

By Kang Seung-woo

Despite a change in government, Korea still finds itself in a tricky situation over how to balance its military alliance with the United States and its economic relationship with China, as Washington pushes to form an anti-Beijing chip alliance.

Since taking office in May, President Yoon Suk-yeol has shown signs of coming closer to the U.S., a drastic shift from his predecessor Moon Jae-in's so-called "balanced diplomacy" between the two countries. But the latest development is posing a challenge for Korea, the world's semiconductor powerhouse, because China is its biggest client and the possible ramifications could affect the entire economy in consideration of its portion in the nation's exports. Even Science and ICT Minister Lee Jong-ho said that Korea should be cautious in deciding whether to join the chip alliance due to possible fallout, Wednesday.

According to media reports, the U.S. government has asked the Korean government to respond to its invitation by the end of August to participate in the envisaged strategic alliance of four global chip powerhouses that also includes Japan and Taiwan, also known as the Chip 4 or Fab 4, a platform apparently aimed at countering China's growing influence in global supply chains.

The U.S. proposal comes as the chip industry has emerged as a key sector of bilateral cooperation between the allies, as highlighted by U.S. President Joe Biden's visit to a Samsung Electronics chip plant as the first stop on his trip to Korea in May.

In addition, U.S. Treasury Secretary Janet Yellen stressed, Tuesday, the importance of "friend-shoring" or the practice of bolstering U.S. trade ties with trusted partners, while avoiding partnerships with countries unfairly using their market advantages, which Yellen said include China.

In response to the reports, China strongly criticized the U.S. for engaging in "coercive diplomacy" and seeking to forcibly relocate industries and push for decoupling.

"Its actions are undermining international trade rules and splitting the global market. In a highly integrated global economy, what the U.S. has done is against the trend of the times and highly unpopular. These moves will eventually end in failure," Chinese foreign ministry spokesperson Zhao Lijian said, Tuesday.

Chinese foreign ministry spokesperson Zhao Lijian / AP-Yonhap

"We hope relevant parties will stay objective and fair, approach issues in light of their own long-term interests and the market principles of fairness and equity, and do more that is conducive to stabilizing the global chip industrial and supply chains."

The Global Times, China's state-run media outlet, even called Korea's possible participation "commercial suicide," Thursday, urging Seoul to say no to the U.S.

"The Korean government and related companies can judge only with common sense that participating in this event not only brings no incremental benefits, but puts them under the risk of damaging major interests," it said.

"Statistics shows that Korea's semiconductor exports reached $128 billion (168 trillion won) last year, and those to the Chinese mainland and Hong Kong accounted for 60 percent. Decoupling with such a large market is of no difference from commercial suicide. The U.S. is now handing Korea a knife and forcing it to do so."

After seeing the Chinese responses, the president told Foreign Minister Park Jin during a ministry policy briefing that the government should try to ensure there are no misunderstandings regarding Korea's participation in the U.S.-led Indo-Pacific Economic Framework or its possible participation in the Chip 4.

The foreign minister also said these moves were not intended to exclude certain countries but things that need to be considered in the process of expanding Korea's national interests.

"While the U.S.-China rivalry has been showing signs of turning into a zero-sum game, deciding whether to join the chip alliance is a really complicated issue even for the Yoon administration, which supports the U.S.' Indo-Pacific strategy against China while seeking to build a bilateral relationship of mutual respect with Beijing," said Park Won-gon, a professor of North Korean studies at Ewha Womans University.

However, Park said there should be consideration of the possible ramifications if Korea does not the chip alliance.

"The previous strategic ambiguity between the U.S. and China meant we would not suffer a loss or pay a cost while benefiting from them, but that era has ended and now we are facing a situation in which that we have to put up with a loss or shoulder expenses," he said.

Park said Japan is seeking to take advantage of the envisaged alliance to revive its declining chip sector, which could be a possible threat to the Korean chip industry.

"Should Korea not join the alliance, Japan would try to fill our absence, and in consideration of that, we will be in a position to accept the U.S. invitation," the professor added.