Benjamin Hughes

November 10, 2024 - 19:17 pm

South Korea Unveils Bold Chips Act to Counter Trump’s Trade Threats on Semiconductor Industry

South Korea’s ruling party has introduced a chips act to support its semiconductor industry against potential U.S. trade threats under President-elect Donald Trump, focusing on subsidies and longer working hours for chipmakers like Samsung and SK Hynix.

SEOUL (Reuters) - In a significant legislative move, the ruling party in South Korea has proposed a special chips act aimed at safeguarding the nation’s semiconductor industry against trade threats potentially posed by incoming U.S. President Donald Trump. The bill, introduced on Monday, seeks to provide chipmakers such as Samsung Electronics and SK Hynix with crucial subsidies and an exemption from the national cap on working hours. This legislative move is seen as essential to protect the economy, where semiconductors accounted for 16% of the nation’s exports in the previous year.

Impacts of Trump’s Potential Trade Policies

President Yoon Suk Yeol raised concerns last week over potential trade policy changes under President-elect Trump, specifically his stance on tariffs targeting Chinese imports. Such tariffs could lead to Chinese competitors lowering their export prices, which could impact the profitability of Korean chipmakers in the international market. The South Korea chips act is thus a proactive measure to mitigate risks from external policies and support local semiconductor giants against undercutting from Chinese firms.

For Korean chipmakers, these trade policy changes have serious implications. If Chinese rivals cut prices in response to U.S. tariffs, Korean firms might be forced to lower prices as well, affecting profitability. Additionally, with the United States increasing its support for domestic chip production, Korean companies may need substantial assistance to remain competitive globally.

Key Provisions in the South Korea Chips Act

According to Lee Chul-gyu, a prominent lawmaker and one of the bill's sponsors, the South Korea chips act is designed to strengthen semiconductor firms amidst escalating global competition. The bill includes provisions to exempt certain employees from the 52-hour weekly cap, allowing research and development teams to work extended hours—a measure deemed necessary to maintain competitiveness.

Despite the bill’s intention to bolster the industry, some opposition exists. Earlier this month, Samsung’s labor union publicly opposed the bill, arguing that the exemption from standard labor laws could unfairly burden employees while failing to address what it called the company’s “management failures.” The union's concerns highlight the complex balance the South Korea chips act must navigate between supporting industry demands and respecting labor rights.

Competitive Challenges in the Semiconductor Industry

Korean chipmakers face increasing competition not only from China but also from Japan, Taiwan, and the United States. These countries are also providing substantial subsidies to their semiconductor manufacturers to capture a larger share of the market in the ongoing semiconductor trade war. Companies like TSMC and SK Hynix are capitalizing on this trend, focusing heavily on artificial intelligence chips to meet soaring global demand.

The global semiconductor industry is experiencing unprecedented demand, particularly for high-performance chips used in artificial intelligence, 5G technology, and electric vehicles. However, the increased competition among major players, along with geopolitical tensions, has intensified the need for countries to support their chip industries with subsidies and incentives.

Future of Semiconductor Trade Relations

In October, Trump hinted at a shift in U.S. semiconductor policy, threatening to remove federal subsidies for foreign semiconductor firms including TSMC, Samsung, and SK Hynix. Trump’s plan favors imposing import tariffs over subsidies, potentially reshaping global semiconductor trade dynamics and affecting South Korea’s position in the market.

For the government, passing the chips act is essential to counterbalance potential adverse trade policies from the U.S. If enacted, it would provide the semiconductor industry with the resources needed to strengthen its resilience and continue thriving on the global stage. By supporting its chipmakers through extended working hours for R&D and financial incentives, the nation aims to ensure its semiconductor industry remains a key pillar of its export economy, securing jobs and fostering innovation despite the mounting challenges posed by shifting trade policies and global competition.