U.S. plans to keep China’s general-purpose chips in check

The U.S. government has opted to investigate the extent to which low-cost general-purpose semiconductors from China are being imported and utilized by domestic companies. Following the restriction on exporting advanced semiconductors, including artificial intelligence (AI) semiconductors using U.S. technology and equipment, to China, it seems that the U.S. government aims to deter China's 'semiconductor rise' by regulating the import of Chinese semiconductors, especially those that are aggressively priced and available in high volumes.

In January next year, the U.S. Department of Commerce will assess the supply and demand dynamics of general-purpose semiconductors for over 100 domestic companies in the automobile, aerospace, and defense sectors. The rationale behind the investigation is reportedly to fortify the U.S. semiconductor supply chain while mitigating national security risks associated with China. It has been explicitly stated that the inquiry focuses on Chinese semiconductors.

Indeed, despite the United States and its allies such as Korea, Taiwan, Japan, and the Netherlands blocking the export of cutting-edge semiconductor technology and equipment, some observers note that the impact on China may not be as significant as initially anticipated. Chinese semiconductor companies benefiting from substantial government subsidies are actively pursuing the general-purpose semiconductor market, focusing on 20 nanometers or higher. This segment constitutes 75% of the global semiconductor market, and Chinese companies are using outdated equipment and technology. If this trend persists, predictions suggest that Chinese products could fill half of the world's market for older semiconductors within two to three years.

The statement from U.S. Secretary of Commerce Gina Raimondo, which mentioned, "The results of the investigation will provide the information necessary for our next actions," is a matter of particular concern for the Korean government and companies. This implies that the import of Chinese semiconductors could potentially be restricted by imposing trade barriers such as high tariffs. The challenge lies in the likelihood that the United States, which has underscored collaboration with its allies in sanctions against China, may request South Korea and other nations to participate in future measures.

Korea holds the top position globally in producing memory semiconductors; however, it highly depends on Chinese products for low-cost general-purpose semiconductors. The inability to utilize Chinese semiconductors could lead to challenges in the price competitiveness of Korean-made home appliances, smartphones, and automobiles. Additionally, if high tariffs are imposed on Chinese semiconductors, it may adversely affect the semiconductors produced in China by companies such as Samsung Electronics and SK hynix.

In September of last year, the Korean automobile industry faced an unforeseen setback when the U.S. government opted to offer subsidies exclusively to electric vehicles manufactured in the U.S. under the Inflation Reduction Act (IRA). Addressing this measure, the Korean government must formulate a nuanced trade diplomacy strategy that anticipates the U.S. government's future intentions to prevent such incidents' recurrence.