The intensifying trade dispute between the United States and China, particularly within the semiconductor sector, has added layers of complexity for technology exporters worldwide. A notable player caught in this conflict is South Korea, a country whose economy relies heavily on its semiconductor industry and whose geopolitical ties with the US and China create an intricate balancing act.

South Korea maintains a commanding position in the global semiconductor market, with industry leaders Samsung and SK Hynix responsible for the majority of worldwide memory chip production. The notable impact of this industry on the nation’s economic health is apparent, as electronics form a substantial portion of South Korean exports, with estimates as high as 30%. Furthermore, the US and China represent South Korea’s two largest export markets, making any future export bans or stipulations by either side a costly adjustment for South Korean manufacturers.

South Korean semiconductor industry entangled by US-China conflict

The strained trade relationship between the US and China holds substantial implications for South Korea’s semiconductor sector. The recent ban by China on American chipmaker Micron due to a failed network security review has had a notable impact on the global chip supply chain. In response, the Biden administration recently permitted South Korea to maintain its chipmaking operations in China, thus preserving its access to a significant market without repercussions from the United States.

Despite the temporary relief, the trajectory of US-China relations presents South Korean chipmakers with a challenging course to navigate. Samsung and SK Hynix, which have significant investments in chip factories in China, must balance their manufacturing presence in China with US policies to protect their interests in the profitable American market.

The complexity of this situation is exacerbated by the fact that about 40% of South Korea’s chip exports are destined for China, as per trade ministry data. Simultaneously, US technology and equipment are crucial for South Korean chipmakers, emphasizing the precarious position Korean corporations must manage amid the escalating “chip conflict.”

Finding itself in the crosshairs of the US-China dispute, South Korea must carefully manage its relationship with these significant trading partners. This requires maintaining robust trade and geopolitical relations with the U.S., a key ally and security partner, while not antagonizing China, an essential market for its semiconductor products.