Will the Inflation Act Block South Korea's Chip 4 Membership?
During a visit to South Korea, U.S. Vice President Kamala Harris vowed to work with the country to resolve disputes over the U.S. Inflation Reduction Act (IRA), Digitimes reported. The IRA, signed into law last month, provides up to $7,500 in tax credits for electric vehicles (EVs) assembled in the U.S., Canada and Mexico, but could hurt South Korean automaker Hyundai and its affiliate Kia. Hyundai Motor, the second-largest U.S. electric vehicle maker by market share, announced in May 2022 that it would invest $5.5 billion to build its first electric vehicle and battery plant in the U.S. state of Georgia. However, production will only begin in 2025, so the project is ineligible for state subsidies until then, raising suspicions of the U.S. in South Korean industry. The IRA response now further complicates U.S. efforts to secure South Korea's commitment to join the so-called "Chip 4" alliance led by the United States, which also includes Taiwan and Japan.
Some are already pessimistic about U.S.-South Korea industrial relations. "Our semiconductor industry has a lot of concerns about what the U.S. government has done recently," South Korea's trade minister Andergan said in a recent interview with the Financial Times. Wonho Yeon, a researcher at the Korea Institute for International Economic Policy, told BusinessKorea that IRA-like measures could be implemented "one after another" until the 2024 U.S. presidential election. In response, the South Korean government needs to increase its bargaining power, Yeon said. South Korea's "Mainichi Economic News" reported that the South Korean government has proposed the establishment of a joint response team composed of government and industry officials to strengthen South Korea's negotiating position.
SK Group Chairman Chey Tae-won also told BusinessKorea that the second-largest conglomerate after Samsung is changing its strategy in response to further regional unrest. Instead of focusing on profit maximization and efficiency, the SK Group chairman said safety would be the company's top priority recently, adding that he has been making plans for a variety of scenarios, including a possible U.S.-China military conflict in Taiwan — This is the worst case. In addition, Chey said it is impossible to give up the Chinese market because it has a large share of South Korean exports. Instead, SK Group leaders urged the government to take steps to address the problem and provide more support for South Korean companies, saying it "doesn't make sense" for companies to tackle such issues on their own. In 2021, China will account for 24% of South Korea's total trade, becoming South Korea's largest trading partner. In the same year, South Korea's chip exports will flow to China at about US$76.8 billion.
However, some in the Korean chip industry found joining the Chip 4 alliance inevitable. At a seminar held by the Federation of Korea Industries on Sept. 28, Yang Xiangzi, a South Korean lawmaker, former Samsung executive and head of the Congressional Select Committee on the Semiconductor Industry, told the audience that, given the U.S. dominance in the upstream semiconductor industry, joining the Chip 4 alliance It is a "top priority" for the country. However, the lawmaker slammed the South Korean government's failure to negotiate effectively with the U.S. on chips and cars, saying the government should send negotiators with deep industrial knowledge, South Korea's JoongAng Ilbo reported. As the main designer of the K-Chips Act, South Korea's response to the US Chip Act, Yang interpreted the US Chip Act as the country's attempt to catch up with South Korea and Taiwan in logic and memory chips, and took the opportunity to urge reports from various South Korean sources. According to media reports, the South Korean legislature will pass the K-Chips bill.
Introduced in early August, the K-Chips bill seeks to allocate $260 billion to the South Korean semiconductor industry over five years, aiming to reduce red tape, expand tax credits and sponsor training programs. However, the K-Chips motion remains stalled as the major parties have yet to agree on the content.
