{"id":2200759,"date":"2023-04-19T18:20:16","date_gmt":"2023-04-19T09:20:16","guid":{"rendered":"https:\/\/koreapro.org\/?p=2200759"},"modified":"2024-02-06T16:41:44","modified_gmt":"2024-02-06T07:41:44","slug":"how-south-koreas-k-chips-act-balances-strategic-priorities-and-foreign-affairs","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2023\/04\/how-south-koreas-k-chips-act-balances-strategic-priorities-and-foreign-affairs\/","title":{"rendered":"How South Korea\u2019s K-Chips Act balances strategic priorities and foreign affairs"},"content":{"rendered":"
South Korea\u2019s K-Chips Act, which the National Assembly <\/span>passed<\/span><\/a> in late March, seeks to safeguard economic priorities and foster a vibrant semiconductor industry for the country. But the law is not just about chips, putting Seoul on a better footing to navigate the complex landscape of international trade, strategic priorities and foreign relations.<\/span><\/p>\n The K-Chips law is emblematic of South Korea\u2019s efforts to develop a new economic security strategy in an increasingly uncertain geopolitical environment. By redoubling indigenous technological innovation, South Korea can ensure future success in the global semiconductor market and gain leverage in shaping the industry\u2019s rules and dynamics.<\/span><\/p>\n The K-Chips Act increases the tax credit from 8% to 15% for large companies investing in manufacturing facilities for \u201cnational strategic goods,\u201d including semiconductors. Tax breaks for small and medium-sized firms will rise from 16% to 25%.<\/span><\/p>\n The law offers a much-needed lifeline to South Korean semiconductor manufacturers facing significant challenges. Samsung Electronics \u2014 South Korea\u2019s largest chipmaker \u2014 recently <\/span>suffered<\/span><\/a> its first quarterly deficit for its semiconductor sector in 14 years, logging a 96% drop in its <\/span>first-quarter<\/span><\/a> operating profit compared to the same period last year. SK Hynix also <\/span>reported<\/span><\/a> its first quarterly deficit in 10 years in the final quarter of last year.<\/span><\/p>\n Much of the decline is due to <\/span>falling global demand<\/span><\/a> for memory chips, of which South Korean chipmakers are the world\u2019s largest exporters. As a result, Samsung <\/span>announced<\/span><\/a> it would significantly reduce the production of its memory chips.<\/span><\/p>\n The trend underscores that while strategic goods are often discussed in the context of national security, semiconductors remain subject to a highly volatile market. The immediate goal of the K-Chips Law is to relieve the present market pressures.<\/span><\/p>\n BEYOND TEMPORARY RELIEF<\/b><\/p>\n Another factor that pushed ROK lawmakers to pass this law, despite their <\/span>initial recalcitrance<\/span><\/a>, was <\/span>concerns<\/span><\/a> about potential domestic investment hollowing out as South Korean companies take advantage of U.S. subsidies under the CHIPS and Science Act.<\/span><\/p>\n By offering tax provisions to encourage domestic investments, the K-Chips Act fulfills Yoon\u2019s campaign promise to make South Korea a \u201c<\/span>semiconductor superpower<\/span><\/a>.\u201d<\/span><\/p>\n Semiconductors are vital to the South Korean economy, with chips accounting for 18.7% of the country\u2019s exports in 2022. A <\/span>report<\/span><\/a> by the Korea Chamber of Commerce and Industry suggests that a 10% decline in chip exports could reduce South Korea’s economic growth rate by 0.67%.<\/span><\/p>\n To ensure the ROK remains competitive long term, the Yoon administration <\/span>announced<\/span><\/a> plans for a \u201cmega semiconductor cluster\u201d in Gyeonggi Province, focusing on logic semiconductor production. Notably, Samsung plans to take advantage of tax incentives to <\/span>build<\/span><\/a> five foundries within the complex to produce in-house designs and logic chips for other firms.<\/span><\/p>\n This move is part of Samsung\u2019s <\/span>accelerated<\/span><\/a> efforts to <\/span>catch up<\/span><\/a> to Taiwan Semiconductor Manufacturing Company (TSMC) in the logic chips market.<\/span><\/p>\n The law also addresses Seoul\u2019s concerns about reliance on global supply chains and the potential for external economic disruptions to impact its national economy. As such, the law will <\/span>support<\/span><\/a> South Korea\u2019s ongoing efforts to <\/span>restructure<\/span><\/a> semiconductor supply chains.<\/span><\/p>\n The K-Chips law’s provisions and intended effects hint at how South Korea will address the contentious U.S.-China economic competition.<\/span><\/p>\n