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[Editorial] Supply chain risk

China bans export of rare-earth tech; US to gather info on China’s legacy chip supply

By Korea Herald

Published : Dec. 27, 2023 - 05:30

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Conflict over supply chains is deepening between the US and China.

China on Thursday banned the export of technology to extract and separate rare earths, materials used to manufacture a wide array of high-tech products.

Beijing stresses protecting national security and public interest as the main reasons, but it seems to have made a countermove to a US move to expand restrictions on trade with China.

Prior to the Chinese ban, the US said it will launch a survey to identify how US companies are sourcing so-called “legacy chips.” The semiconductors are not cutting-edge but still vital to the global economy as mainstream chips. The US looks to track how deeply reliant US companies have become on China’s supply of legacy chips.

This measure came after the US began to curb the export of advanced chips to China in October last year. The survey is predicted to become a steppingstone to US check on China in legacy chips. The share of Chinese legacy chips is growing in the global market.

The US-China summit last month was hailed as an occasion toward stabilizing their relations, but the recent tit-for-tat involving legacy chips and rare earths raises concerns about the escalation of their supply-chain conflict.

Exports propel Korea’s growth. Semiconductors account for about 20 percent of the nation’s exports. Its two largest export markets are China and the US. Semiconductor exports bounced up last month, stopping a 16-month consecutive decline. Pushes and shoves between the US and China to secure advantageous supply chains are unwelcome developments for Korea. Seoul pins hope on the recovery of semiconductor exports and exports to China to boost its growth next year. If supply chain rivalry between the two countries expands to new fronts, Korea's such expectation may come to naught.

Impact of the US and Chinese measures on Korean industries is limited for the present. But Korea cannot be relaxed.

If the US curbs the import of Chinese legacy chips, the export of Korean products using Chinese chips could be adversely affected. Korea must prevent its companies from suffering an unexpected disadvantage similar to one that its automakers suffered when they failed to make the list of tax credit beneficiaries under the US Inflation Reduction Act.

No one knows if China will curb the export of rare earth materials. Korea must not ignore the worst-case scenario such as total export ban. Korea imported 79.4 percent of rare earth metals for semiconductors from China in the first half of this year.

It is wise to treat supply chain risk from China as a constant in making economic policies. In July, Beijing curbed exports of two chipmaking metals -- gallium and germanium compounds. In November, it imposed restrictions on the export of graphite, another critical mineral widely utilized in electric car batteries and semiconductors. Late last month, it held shipments of industrial urea. Korea imported 87.6 percent of gallium and germanium products from China in the first half of this year.

Next year will likely see supply chain risks mount as economic nationalism is gaining traction globally. Korea needs to make all-out efforts in both public and private sectors to keep its economic security. It is important to quickly catch the signs of policy changes in trading partners and act proactively.

Korea must speed measures to follow up on the basic law on supply chains that passed the National Assembly this month. It must set up a command center for a pan-governmental management of supply chains and expand cooperation with countries that possess mineral resources.

The US-China conflict over supply chains is unlikely to be settled soon. Korea must accept this as a constant in mapping out paths to keep its economic security.

The presidential office will establish the new position of third deputy national security adviser to handle economic security issues. Trade diplomacy of the third deputy adviser and related ministries has become more important.