U.S. semiconductor export rules pose risks for Korean firms

The U.S. government announced that companies such as Samsung Electronics and SK Hynix must obtain individual approvals to bring U.S.-made semiconductor equipment into their factories in China. Previously, since October 2022, the U.S. had restricted exports of U.S.-made semiconductor equipment to China but allowed allied nations’ companies to receive the equipment without separate approval. The new announcement withdraws this exception. South Korean companies are expected to be affected as the U.S. intensifies sanctions against China to curb the country’s “semiconductor rise.”

While the measure does not completely block exports, each equipment import now requires individual approval, raising the likelihood of disruptions at Chinese factories, which serve as key production bases for South Korean semiconductor companies. Currently, Samsung Electronics produces 40 percent of its NAND flash in Xi’an, China, while SK hynix manufactures 40 percent of its DRAM and 20 percent of its NAND flash in Wuxi and Dalian, respectively. In the semiconductor industry, equipment upgrades are critical for competitiveness, and delays in U.S. government approvals during equipment replacement could disrupt production. If U.S.-China relations deteriorate, there is also a risk that equipment imports could be blocked altogether.

The Trump administration’s measures against China, aimed at preventing semiconductor manufacturing technology from flowing into the country, have become increasingly aggressive and persistent. At the end of last year, it banned exports of high-bandwidth memory (HBM), a key component of AI semiconductors, to China. Starting in April, exports of lower-spec AI chips were also controlled, before being allowed to resume under the condition that 15 percent of Chinese sales be paid to the U.S. government. Most recently, the administration mandated that any semiconductor equipment brought into Chinese factories must undergo individual U.S. government approval.

Despite U.S. restrictions, China is accelerating its technological self-reliance and countering by controlling the production and export of minerals essential for semiconductor manufacturing. China’s ultimate goal is to domestically produce everything from memory semiconductors to AI chip design and semiconductor equipment. Concrete results are emerging, including the development of DeepSeek, an AI model comparable in performance to those of U.S. big tech companies. Chinese semiconductor companies plan to triple their AI semiconductor output next year in pursuit of “semiconductor self-strengthening.”

In this context, tightening export restrictions to China on allied nations’ semiconductor companies could inadvertently boost the competitiveness of Chinese firms and accelerate China’s semiconductor self-strengthening. This is why the South Korean government must persuade the U.S. administration. Since the measure will take effect in 120 days, South Korea must deploy its full diplomatic leverage in follow-up working-level talks after the Korea-U.S. summit to secure exemptions for its companies from the equipment import approval requirement. South Korean companies must not be left vulnerable like “shrimp caught in a storm” amid the intensifying U.S.-China semiconductor rivalry.