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President Joe Biden of the United States has called China the ‘bad folks.’ The U.S. is striving to curb China’s advancement in high-tech industries due to a sense of crisis. Over time, China has been appropriating the technology and facilities of foreign companies that have invested in the country through various means, and externally, they have been gradually building their competitiveness by acquiring global high-tech companies one by one with their massive financial power. Despite the U.S. having elevated China to the ‘G2’ status a decade ago, China still benefits from its ‘developing country’ status. With the power thus accumulated, China is providing unlimited funding to boost its industries under the name of the Communist Party. This is why the U.S. has finally drawn its sword.
Instead of the powerful tariff barrier ‘Trade Expansion Act Section 232’ that the U.S. had implemented globally, the simultaneous activation of the so-called ‘Semiconductor Support Act’ and ‘IRA (Inflation Reduction Act)’ accurately targets China. The ‘Semiconductor Support Act,’ which is unimaginable for any country other than the U.S., aims to form a strong alliance between the U.S., South Korea, Taiwan, and Japan, the main pillars of the supply chain ecosystem for semiconductor design, components, and production. It has intricately tied these countries to prevent China from stealing or fostering semiconductor-related industries. Some may even call it control.
The IRA also focuses on pressuring China regarding electric vehicles. Subsidies are provided only for electric vehicles produced in the U.S. or friendly countries using batteries made from minerals mined in the U.S. or friendly countries. Essentially, the U.S. has issued a blockade against China’s high-tech industry. Compared to China’s discrimination in subsidies for Korean vehicles without special notice, the U.S. is relatively fair.
At present, it has become difficult for Samsung Electronics and SK Hynix to expand their semiconductor facilities in China, and the export of high-tech components to China has also been blocked. Auto and battery companies are making strenuous efforts to secure the supply chain proposed by the U.S., including large-scale local investments. This process requires much higher costs, and they have to accept the obsolescence of existing facilities. Criticism is inevitable. There has been an outpouring of concerns that the U.S. is resorting to force to protect its domestic industries and that our companies will suffer significant losses immediately.
Is it a picture of only losses for us? At this point, can we stop China’s monopoly without the U.S.? China, which has been vigorously promoting semiconductor development and fully committed to fostering future cars, is eyeing the markets that are the golden geese of our country.
China’s electric vehicle manufacturer BYD, which has grown based on domestic demand, surpassed Tesla last year to become the number one in new energy vehicle sales, and its total profit margin was also 22%, ahead of Tesla’s 18%. As Chinese electric vehicles flew off the shelves, Chinese batteries also soared. According to SNE Research on the 7th, China’s CATL is the world’s number one in battery market share, and BYD is second. They have an overwhelming share of over 50%. It’s questionable if they can be contained. There are growing concerns that the semiconductor industry could become the second display LCD.
The deepening U.S. Semiconductor Support Act and IRA could be the answer. Already, high-tech companies around the world, including South Korea, are pulling their hands out of investing in China and are increasing their coordination with the U.S. Among the foreign companies’ investment plans in the U.S. announced since last August, projects of $100 million or more (about KRW 134 billion), South Korea (20 cases) surpassed the EU (19 cases) to rank first. South Korea had more investment commitments than the entire Europe.
China’s national company, Huawei, strives to apply advanced process semiconductors to its new smartphones. Still, without government support, it is just a show that cannot be sustained, according to the overall evaluation. The world’s number one automaker, Toyota’s long-term battery supply contract with Korea’s LG Energy Solution for its U.S. entry instead of China could be a triumph of the IRA. Collaborations of Korea and Japan entering the U.S. market hand in hand are expected to continue. While Toyota is trying to enhance its battery capabilities, it is also sourcing cathode materials from LG Chem. This means that the supply chain is bound to be intertwined.
The results of the alliance with the U.S. are expected to be visible in 10 years or closer to 5 years. The semiconductor industry is quickly recovering from the oversupply of memory, and the market for high-performance chipsets brought about by generative AI is just beginning to bloom. Internal combustion vehicles are expected to pass the baton to electric vehicles by 2030. In this golden time that China is missing, our companies are seizing ongoing opportunities.
Of course, during this flow, we must consistently convey our demands and remain in the leading position. The U.S. also knows that the ecosystem can be maintained only when it wins with its allies. This is why I think it will be different from the lost 30 years that Japan unilaterally faced due to the Plaza Accord in the past.
By. Choi Won Young
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