SK Hynix Inc's DRAM modules are seen in this picture illustration, Seoul, South Korea.

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How US chip controls on China benefit and cost Korean firms

Policy Briefs 23-10
Photo Credit: REUTERS/Kim Hong-Ji

This research is part of a 2023 series on the Korean economy. For additional research, look under "Recommended."


Export controls have become one of the most contentious battlegrounds in US-China technology competition. US semiconductor export controls aimed at China, however, have also embroiled allies such as South Korea. These controls largely do not affect Korean firms' chip sales to China, but Korean firms are vulnerable because they have large chip production facilities in China, which make around 40 percent of the memory chips for these firms. Those facilities in China rely on access to semiconductor manufacturing equipment (SME) or servicing from not only the United States but also other countries that have imposed controls on exporting advanced SME to China. Although the United States is unlikely to shut off access to the technology needed to keep the plants running for the foreseeable future, it has signaled that it will not allow new technology needed to upgrade those facilities, so they will become uncompetitive over the next few years and will need to be shuttered or sold off. For future production, Korean firms will need to build new facilities at great (albeit subsidized) expense, amortizing the sunk costs of operations in China over the coming years. At the same time, the controls have created significant benefits for Korean firms by shutting off Chinese competition for their memory businesses. Yet benefiting from the tensions between superpowers comes with serious risks. Firms and governments must deal with much greater uncertainty and evaluate the risk of their dependence on both the United States and China.

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This publication does not include a replication package.

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