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US Secretary of Commerce Gina Raimondo speaks about the US semiconductor policy at the White House in September 2022. (Reuters/Yonhap)

South Korean companies that invested in the US to build semiconductor factories will have to limit their manufacturing capacity at their Chinese factories to 5 percent or less for 10 years in order to receive US subsidies.

While the new regulations are less strict than the previously feared total ban on upgrading manufacturing facilities in China, the shackles being imposed by the US on the domestic semiconductor industry remain weighty.

On Tuesday, the US Department of Commerce announced detailed regulations of the guardrails concerning subsidies for semiconductors. Countries with semiconductor manufacturing factories in China will be able to expand production by up to 5 percent and companies will still be able to produce more semiconductor chips from one wafer through technological development.

Initially, the CHIPs and Science Act enacted by the US stipulated that companies receiving US government subsidies would not be able to substantially expand their semiconductor manufacturing capacity in China for 10 years. The situation now seems to have eased with the newly disclosed specifics of the regulations.

The domestic mood is that companies like Samsung Electronics and SK Hynix, which both operate large-scale high-tech semiconductor production factories in China, have avoided the worst-case scenario for now.

However, the risks for domestic companies have not gone away. For instance, the highly restrictive regulations announced by the US government last month still remain in place.

The excessive information demanded as a condition to receive subsidies from the US, runs the risk that South Korea’s advanced semiconductor technology and business secrets could be leaked. There is even one clause that requires the return of certain subsidies if companies earn more than a certain amount in profits.

Although South Korean companies received a one-year waiver from the US government that allows them to supply the necessary equipment for their semiconductor production facilities in China without having to obtain permission from the US Department of Commerce in advance, the chances of changes being implemented are high.

Although the Biden administration emphasizes the importance of alliances through diplomacy and security, there has been a growing perception in the economic field that the US is causing damage to the alliance with its attitude of “America first” and protectionist policies.

With the US already discriminating against South Korean electric vehicles with the US Inflation Reduction Act, there are significant concerns that South Korea could end up losing its cutting-edge semiconductor technology as the US continues prioritizing the revival of its domestic semiconductor industry by imposing regulations on semiconductor production in China.

In response to such concerns, the US seems to have taken a step back. However, its basic policy has not changed at all. The South Korean government and domestic companies should not be satisfied with these “guardrails” having been somewhat eased but must take on a more proactive negotiating strategy and make more demands.

At the upcoming South Korea-US summit scheduled for April, President Yoon Suk-yeol mustn’t answer to the US’ beck and call while expecting good-will gestures from Washington. He also shouldn’t give in for security-related reasons. We hope the mistake of exchanging presidential hospitality with the future of the country will not be repeated again.

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