US warns of chip duties unless firms expand investment; Seoul cites 'no less favorable' terms

US Commerce Secretary Howard Lutnick reportedly warned Friday that major memory chipmakers that are not investing in the US could face tariffs of up to 100 percent.

A day earlier, Taiwan concluded negotiations with the United States over semiconductor tariffs. As a result, the potential tariff he mentioned would apparently target South Korea’s two chipmakers, Samsung Electronics and SK hynix.

South Korea finalized a trade deal last year to reduce US tariffs in return for large investments in strategic US sectors, while Taiwan's trade negotiations were in progress.

In the deal, Seoul and Washington have left US tariffs on Korean semiconductors as an issue for future negotiations. Instead, the US said semiconductor tariffs on South Korea would be "no less favorable than terms that may be offered in a future agreement covering a volume of semiconductor trade at least as large as South Korea's." That language appeared to point to South Korea's key competitor, Taiwan.

In the US-Taiwan agreement on chip tariffs, Taiwanese firms committed to at least $250 billion in new direct investments to expand production in the US. Taiwan will provide at least $250 billion in credit guarantees to support its enterprises.

In return, Taiwanese companies building new US facilities can import up to 2.5 times their planned production capacity duty-free during construction. Once projects are completed, firms can continue to import up to 1.5 times their new US capacity without paying Section 232 duties. The US effectively granted Taiwan tariff-free quotas on the condition that it increase investments in the US.

Under its tariff agreement with the United States, South Korea pledged investments of $350 billion, with $150 billion earmarked for US shipbuilding and $200 billion for strategic projects still to be defined.

Washington continues to link preferential tariff rates to the construction of new production facilities in the US. It could impose on South Korea conditions comparable to those applied to Taiwan.

The investments already committed represent a heavy burden for South Korean companies. Chipmakers must spend significantly to build new factories at the semiconductor cluster under development in Yongin, Gyeonggi Province.

The $350 billion deal has weighed on the Korean currency, contributing to its depreciation against the US dollar. Financial institutions at home and abroad forecast ongoing volatility in the won-dollar exchange rate this year.

Cheong Wa Dae said South Korea would consult with Washington to minimize the impact of US semiconductor tariffs on its firms, based on the principle of "no less favorable" terms. The principle — already agreed upon — must be upheld.

Although Samsung Electronics and SK hynix have already committed $37 billion and $3.87 billion, respectively, to US investments, the US is likely to seek further commitments in future negotiations. If they result in South Korea being subjected to less favorable terms than Taiwan, the Korean semiconductor industry could suffer a fatal blow.

Investment in the US warrants attention, but expanding the domestic production base is a pressing priority.

Moving South Korean semiconductor production overseas risks industrial hollowing-out and the loss of technological advantage. Preparations must be made to address this.

South Korea excels in memory chip production, but relies heavily on foreign countries for design, postprocessing and equipment. A rapid development of the related industrial ecosystem is essential.

Countries are fiercely competing to localize semiconductor production within their own borders. South Korea needs to ease excessive regulations, such as the rigid 52-hour workweek, and step up investment and research support for its strategic semiconductor industry.

The US warning of semiconductor tariffs early this year may signal the start of another tariff war, potentially as intense as that in 2025. With Washington likely to press for negotiations on an ongoing basis, Seoul must be prepared for repeated talks.


khnews@heraldcorp.com