As part of the US-South Korea-Japan Trilateral Cooperation Program on Economic Security, the Brookings Center for the Study of East Asia Policy (CEAP) hosted a workshop with experts from these three countries on April 25, 2023. The session was devoted to technology. Competition with China and prospects for trilateral export control coordination. CEAP Director Mireya Solis followed up with a written conversation with Seong-ho Shin, professor of international security at Seoul National University’s Graduate School of International Studies.
MIREYA SOLÍS.
In what ways is the role of export controls during the Cold War similar or different from the current era of US-China strategic competition? How has South Korea’s thinking on export controls evolved over time?
Seong-ho Shin.
During the Cold War, export controls were driven by security competition between the United States and the Soviet Union. The United States sought to prevent sensitive military items and technology, including dual-use technology, from falling into Soviet hands. However, the current export controls against China are driven more by economic competition as well as certain security concerns, given that the main domestic and foreign policy agenda of the Biden administration is to “build the U.S. economy better” for the American middle class to strengthen the U.S. : democracy. The future of US-China economic competition will be based on competition in high technologies such as artificial intelligence, big data, space, biotechnology and robotics. Essential to all these technologies are semiconductors.
South Korea is a major player in semiconductor manufacturing, making cooperation with Seoul critical to U.S. export control efforts against China. South Korean companies such as Samsung Electronics and LG entered the chip manufacturing business in the 1980s. There was some tension between Seoul and Washington over control of South Korean exports of these chips, even though South Korea had no direct trade relations with the Soviet bloc during the Cold War. However, the stakes are much higher for South Korea today. It is a trade-dependent economy (over 70% of GDP), its main trading partner has been China since 2003, and China plus Hong Kong account for over 60% of South Korea’s chip export market. By comparison, the US share is only 7.7%.
MIREYA SOLÍS.
How closely aligned or misaligned are the United States and South Korea in technological competition with China? The United States recently announced the need to halt the development of some advanced Chinese technologies that could feed into military applications. What has been Seoul’s response?
Seong-ho Shin.
Although South Korea’s view of China has become increasingly negative in recent years, especially after the THAAD controversy between Seoul and Beijing (China’s economic retaliation for the deployment of a US-based anti-ballistic missile defense system), most South Koreans still support retention. friendly relations with China. At the same time, South Korean businesses are increasingly facing competition from Chinese companies in high-tech industries. China is actively pursuing semiconductors with massive government investment. In this regard, South Korea may view American efforts to curb China’s high-tech ambitions as a positive step for South Korea’s long-term technological interests. However, given that the Chinese market is a major source of revenue, South Korean chipmakers such as Samsung and SK Hynix simply cannot afford to ignore business prospects in China. The two giant chipmakers suffered heavy losses last year, largely due to the shrinking Chinese economy due to the COVID-19 lockdown. Samsung reported an earnings shock in Q4 2022 with a 97% year-over-year drop in operating profit. However, South Korean companies expect sales to recover as China’s economy reopens. They are worried that US export control policies could undermine their strategy to expand sales in the Chinese market.
According to the Financial Times, China is considering its own counter-sanctions against Micron Technology, a major US chipmaker that derives about 25% of its revenue from China and Hong Kong. The US government has reportedly asked the South Korean government to force Samsung and SK Hynix to refrain from increasing sales to China if Micron is banned from selling its chips. According to some commentators, the US is harming South Korean businesses for its own national interests. Some experts worry that South Korea could become a hostage in a US-China economic war if China retaliates with formal or informal economic sanctions against the South Korean economy.
MIREYA SOLÍS.
On October 7, 2022, the US government announced a comprehensive package of export controls that would limit Chinese access to advanced artificial intelligence and supercomputer chips and impose extraterritorial controls on the sale of sophisticated chips if they are manufactured with American technology. How has this decision affected South Korean companies? Are the United States and South Korea effectively coordinating their export control policies?
Seong-ho Shin.
This decision has become a dilemma for South Korean chip makers. Samsung and SK Hynix have invested more than $30 billion respectively in building massive manufacturing facilities in China. Compare that to Samsung’s $17 billion factory investment in Taylor, Texas. China’s factories need further upgrades to produce high-end chips and meet China’s growing demand. And the Oct. 7 measures give Korean chipmakers just one year to make the necessary changes to their operations in China. Samsung has reportedly been hesitant to accept US subsidies through the CHIPS and SCIENCE Act, which would force it to abandon factory upgrades in China.
In March, Washington announced national security safeguards barring recipients of CHIPS subsidies from increasing semiconductor manufacturing capacity in China by 5% or more over the next 10 years, giving Samsung and SK Hynix some leeway. Some see this as a relaxation of the October 7 regulations, as the new guidelines are limited to quantitative production capacity and the United States has decided not to question the “technological progress” of Samsung and SK Hynix while the subsidies are paid. . For now, Korean chip makers are breathing a sigh of relief, as the new measures at least allow it few Expansion of semiconductor manufacturing capacity in China and other countries. South Korea’s government has said it will actively support Korean companies in making strategic decisions about whether to continue pursuing Chinese semiconductor projects while receiving subsidies from the United States. However, since key provisions of the October 7 regulations still restrict the export of advanced chip manufacturing equipment to China, it is unclear how this will affect South Korea’s chip manufacturing in China in the long run.
MIREYA SOLÍS.
Major progress has been made in resolving the export control row between Japan and South Korea for advanced semiconductor manufacturing chemicals. How do these developments contribute to greater cooperation between South Korea and Japan?
Seong-ho Shin.
South Korean President Yun Suk-yeol’s government’s active engagement with Japan has definitely shed a positive light on South Korea-Japan bilateral cooperation, including export controls. However, there is growing frustration among the South Korean public that the Japanese government has not responded quickly enough to Yoon’s positive involvement. Japan imposed economic sanctions on South Korea for the first time, controlling exports of key semiconductor manufacturing materials, after South Korea’s Supreme Court ruled in 2019 on a forced labor claim. Recently, South Korea took the first step by lifting counter-sanctions and rehabilitating Japan. its trade whitelist and withdrawing its case against Japan at the World Trade Organization. However, Tokyo initially only announced a review of the issue. Japan’s delayed response has angered the Korean public, which believes the Yoon government made too many concessions too early. Fortunately, the Japanese government has just announced that it will reinstate South Korea as a preferred trading partner on its white list. Another positive sign of reciprocity was the visit of Japanese Prime Minister Fumio Kishida to Seoul in May.
However, Yun’s bold approach to mending relations with Japan faced strong domestic criticism from the media and the progressive liberal camp. They believe Yun’s approach not only ignores outstanding historical disputes with Japan, but also challenges the constitutional order and individual rights by ignoring the Supreme Court ruling. With his already low approval rating at around 30%, Yun could pay a heavy political price in next year’s general election, leaving the president and his agenda in limbo. Tokyo must move quickly to reciprocate Yun’s favor in building a constructive partnership with Seoul. Otherwise, it could be a lost opportunity for both Seoul and Tokyo.
MIREYA SOLÍS.
In November 2022, the United States, Japan, and South Korea issued a declaration on the Trilateral Partnership for the Indo-Pacific Region in Phnom Penh. What are the prospective areas of trilateral cooperation?
Seong-ho Shin.
Due to Yoon’s active engagement with Tokyo, South Korea and Japan have resumed military cooperation in sharing information on North Korea’s missile tests and nuclear activities. The two neighbors also agreed to conduct regular anti-submarine and anti-missile defense exercises against North Korean threats. They further plan to conduct maritime interdiction and anti-piracy exercises, as well as training for disaster relief and humanitarian assistance in the Indo-Pacific region. The two countries are also considering joining the “Chip 4 Alliance” in partnership with Taiwan and the United States to ensure a stable supply of semiconductors. South Korea and Japan are major players in global semiconductor manufacturing, with South Korea leading chip manufacturing technology and Japan specializing in manufacturing equipment. With the United States’ strength in chip design, the three could work together to protect semiconductor supply chains by coordinating their consumption and export controls. Other areas of cooperation in supply chain flexibility may include emerging next-generation technologies in batteries, biotechnology, quantum computing, medical devices, artificial intelligence, and more.