Escalating chip war

The global semiconductor war is intensifying. Above all, China’s “rise” in the chip-making industry is alarmingly fast. According to a report published by the U.S. Semiconductor Industry Association (SIA), China increased its share of the global semiconductor market to 7 percent in 2021, up from 5 percent in 2018-20. That was the result of Beijing’s extensive support for Chinese chipmakers to lift the domestic production ratio to 70 percent by 2025.

In contrast, Korea’s global market share, which stood at 24 percent in 2018, dropped to 19 percent in 2021. Moreover, the SIA report predicted that China would emerge as the No. 2 country in semiconductor design by 2030, with a global share of 23 percent, far exceeding Korea’s 19 percent.

The U.S. is moving even faster. In August, Washington implemented the CHIPS and Science Act of 2022, which calls for, among others, giving a tax break of 25 percent to companies that build chip plants in America. U.S. President Joe Biden aims to turn the U.S. into a “mecca for the global semiconductor industry.” The Biden administration is reportedly working out a separate support package, including additional tax benefits and immigration aid to bring in a more professional workforce in response to the industry’s demands.

All this contrasts sharply with the Korean government’s lack of support. The Yoon Suk-yeol government must also learn from the example of its Taiwanese counterpart, which raised TSMC as the world’s largest foundry with extensive support. The Taiwanese legislature approved a law recently that allows a 25 percent tax cut on R&D spending by companies headquartered in the island country.

Four months ago, the Korean government submitted to the National Assembly a supportive bill featuring a 20 percent tax cut, lower than those of the U.S. and Taiwan. However, lawmakers have been sitting on their hands all this time. Korea’s policy support for chipmakers lags behind the U.S., China, and Taiwan. If its politicians drag their feet in approving even this humble aid package, the country’s aim of maintaining its industrial lead will end up being just a pipe dream.