The brewing conflict between the United States and China is showing signs of escalating with both superpowers taking positions over thorny issues such as semiconductors and key rare earth metals. The U.S. announced a plan on Thursday to launch investigations next year into some 100 American companies importing Chinese-made legacy semiconductors.
The U.S. Commerce Department is poised to survey the legacy of node chips manufactured by Chinese firms for supply to major U.S. industries such as telecommunications, automobile manufacturing and defense. The survey was designed to “create a level playing field for legacy chip production, and reduce national security risks posed by China,” the department said.
In response, China said the U.S. move would eventually undermine global supply chains and called on the U.S. to abide by international trade rules and market-based principles, via a statement read by Foreign Ministry Spokesman Wang Wenbing on Friday. Beijing criticized the U.S. for attempting to thwart China's semiconductor industry. Earlier, the U.S. introduced a bill designed to prevent exports of state-of-the-art chips to China with President Joe Biden signing the Chips Act featuring the provision of $53 billion in subsidies to wafer fabs made on American soil.
Legacy chips adopt 28-nanometer or older technologies and China has been persistently expanding its share of those applications in global markets. Triggered by the recent U.S. move, the Chinese Ministry of Commerce unveiled a list of rare materials on Thursday to be used in banning exports of relevant technologies. China’s move is expected to have a far-reaching impact on the entire global semiconductor market, because the country accounts for 60 percent of the total production of rare earth metals and 90 percent of the associated technologies.
Given Korea’s heavy reliance on trade, the intensifying Sino-U.S. rivalry involving chips and rare resources has been a source of great concern. Some experts say the current developments will not bring great damage to Korean companies. However, it is not proper for us to remain inactive since the escalating bilateral tension will likely result in further possible disruptions of global supply chains and fortify trade protectionism.
Once the U.S. government embarks on probes into the legacy chips, such moves will also affect Korean companies currently in the U.S. China’s move to restrict exports of rare earth metals will also deal a blow to Korean makers of automobiles and medical equipment.
Adding to the anxiety, the European Union recently announced a package of measures largely designed to weaponize technologies and secure stable supply chains. France, for its part, introduced a new green industry bill, equivalent to its own version of the U.S. Inflation Reduction Act, that excludes Korean electric vehicle manufacturers from the list of EU subsidy recipients.
What matters more is the fact that the current Sino-U.S. trade confrontation is showing no signs of mitigating in the foreseeable future. Rather, there are numerous signs that the rivalry will continue to escalate.
The Yoon Suk Yeol administration must recognize the seriousness of the situation and take due measures to tackle it. Against this backdrop, it is fortunate that the government decided to set up a new and high-ranking post in charge of economic security issues at the presidential office.
The ruling and opposition parties passed a bill designed to help stabilize the supply chains and boost economic security. The Yoon administration has vowed to lower the dependency on China to 50 percent for the supply of crucial products such as chips, rare earth materials and urea. However, it is not easy to lower Korea's economic reliance on China in a short timeframe. So it is time to focus on mending the soured ties with the neighboring country, while lessening the dependency on a gradual basis. The government should carry out proactive diplomatic activities to maximize the national interest on the economic front.