President Yoon Suk-yeol talks with U.S. President Joe Biden prior to a trilateral summit among Korea, the U.S. and Japan on the sidelines of the 2022 NATO Summit in Madrid, Spain, June 29. Courtesy of presidential office

Government delays decision on fears of possible trade conflict with China

By Baek Byung-yeul

Korea is still hesitant to join the United States-led semiconductor supply chain alliance, known as the Chip 4, fearing that this could lead to further retaliation from China similar to its response to the deployment of a U.S. Terminal High Altitude Area Defense (THAAD) anti-missile battery here in 2016.

"We cannot evaluate the direct impact of Chip 4 because the details of the alliance have not been decided and the agenda of the alliance has not been set," Trade, Industry and Energy Minister Lee Chang-yang reiterated during a conference at the National Assembly on July 29.

"The government is discussing what cooperation and strategies are needed to increase the competitiveness of the Korean semiconductor industry in the midst of the international situation."

However, experts said Sunday that the country needs to show its willingness to participate actively in the alliance and choose to cooperate with the U.S. because that is the way for Korea to ensure economic and national security.

"The most important thing in operating the country is ensuring national security, and Korea has had security issues with China. In that sense, it is more important for the country to join the semiconductor alliance to cooperate with the member countries of the alliance and go together with the U.S.," said Kim Dae-jong, a professor of business administration at Sejong University.

"Korea's economy is 80 percent dependent on international trade and the Chinese market accounts for around 25 percent of the nation's total trade. It is safer for the country to reduce its reliance on China and expand trade with other countries."

The Chip 4 alliance is a proposed consultative body led by the U.S. to discuss the stable management of chip-related supply chains, train skilled personnel and conduct research and development jointly in the semiconductor sector. Korea, Japan and Taiwan have been invited to join.

U.S. President Joe Biden proposed forming the alliance in a bid to contain China's growing involvement in high-tech industries. Though Japan and Taiwan have already responded positively to joining the chip alliance, Korea has not decided on its stance, as joining could possibly cause further economic retaliation from China. Another reason for the Korean government's careful deliberation is that 60 percent of the country's semiconductor exports came from China, including Hong Kong, in 2021.

When the country decided to deploy the THAAD system in 2016, China launched various economic retaliation measures including tourism restrictions, a ban on Korean pop cultural imports, the denial of government subsidies to Korean companies and unofficial boycotts of Korean products.

Due to the disruptions, companies like Lotte Group had to withdraw its long-established operation from the Chinese market as it was unable to continue running its business there. Also, game companies were denied the ability to earn licenses required to sell their new games in the Chinese market.

The Chinese government has already warned of what will happen if Korea joins the U.S-led chip alliance. "We hope South Korea will proceed from its own long-term interests, the principle of fair and openness to do more things that are conducive to the development of China-South Korea relations and the stability of the global industrial and supply chains," Zhao Lijian, a spokesman of China's foreign ministry, said on July 26.

The U.S. is reportedly supposed to notify the three countries about the first Chip 4 meeting at the end of August, but Korea has yet to decide whether to join the U.S.-led alliance, as joining the alliance could lead directly to trade friction with China.