🚨 Analysis of Semiconductor Export Decline and Dual Threats
Today Korean Economic News | 2025.03.02
📌 Semiconductor Exports Decline After 16 Months... China's Low-Price Offensive & US Tariffs Create 'Dual Risks'
💬 Semiconductor exports, which had been increasing for 15 consecutive months, turned negative in February with a 3% year-on-year decline. PC sales slowdown and low-price offensive from Chinese semiconductor companies are cited as major factors, while the Trump administration's tariff policies are expected to further negatively impact semiconductor exports.
1️⃣ Easy Understanding
Semiconductor exports, the backbone of the Korean economy, have turned to a downward trend for the first time in 16 months. This may not be a simple temporary phenomenon but a signal of structural changes and emerging new threats. I'll explain why this situation has occurred and what it means.
Semiconductors are the "brain" of modern electronic devices such as smartphones, computers, and automobiles. Korea ranks first in the global memory semiconductor market, with global leaders Samsung Electronics and SK Hynix. Semiconductors are a "star product" accounting for about 20% of Korea's exports, and fluctuations in semiconductor exports have a significant impact on the entire Korean economy.
Semiconductor exports have been steadily increasing over the past 15 months. This was due to the surge in semiconductor demand following the acceleration of digital transformation after COVID-19, the AI boom, and data center expansion. However, the situation changed from February. What happened?
First, the global PC market has entered a recession. PC demand, which had surged due to remote work and non-face-to-face education, is decreasing in the post-COVID era. Since PCs use many memory semiconductors, the decline in PC sales directly leads to a decrease in semiconductor demand.
Second, the low-price offensive from Chinese semiconductor companies has fully materialized. China has made massive investments in its domestic semiconductor industry in response to US technology sanctions. Recently, Chinese companies have been expanding their market share using price competitiveness as a weapon, even if the quality is somewhat lower, and are particularly threatening Korean companies in the low-price memory market.
Third, the protectionist policies of the US Trump administration have emerged as a new threat. President Trump has announced the imposition of wide-ranging tariffs on imported goods, which could directly impact Korea's semiconductor exports to the US. Although there is a Korea-US FTA, additional tariffs on key items including semiconductors have been raised as a possibility.
These "dual risks" (China's low-price offensive and US tariff policies) are new challenges facing the Korean semiconductor industry. What is particularly concerning is that Korea could be pressured from both sides between China and the US. Korea may face difficulties in the Chinese market due to low-price competition and in the US market due to tariff barriers.
The decline in semiconductor exports could have a negative impact on Korea's trade balance and economic growth in the short term. Furthermore, it could be an important inflection point that may affect the global competitiveness and status of the Korean semiconductor industry in the long term. In response, Korean companies are exploring various strategies such as strengthening competitiveness through technological innovation, diversifying production bases, and expanding into the non-memory semiconductor sector.
2️⃣ Economic Terms
📕 Semiconductor
Semiconductors are key components of electronic devices and a major export item for Korea.
- A material with properties between conductors and insulators, functioning to process electronic signals.
- Divided into memory (DRAM, NAND, etc.) and non-memory (CPU, AP, etc.) semiconductors, with Korea having global competitiveness in the memory semiconductor field.
📕 Export Dependency
Export dependency indicates the degree to which a specific product or country depends on exports.
- The Korean economy has a high export dependency structure, with exports accounting for about 40% of GDP.
- Semiconductors are a key item accounting for about 20% of Korea's total exports, with fluctuations in the semiconductor industry having a significant impact on the national economy.
📕 Low-Price Offensive
Low-price offensive is a strategy where competitors lower prices rather than focusing on quality to increase market share.
- Made possible through production cost reduction, government subsidies, or strategic acceptance of initial market entry losses.
- Chinese companies are employing low-price strategies in the semiconductor market based on large-scale government support.
📕 Tariffs
Tariffs are taxes imposed on imported goods that affect trade flows and international competitiveness.
- They have the effect of increasing import prices to protect domestic industries but can lead to retaliatory measures from trade partners.
- The Trump administration is pursuing extensive tariff impositions to protect US industries and reduce trade deficits.
3️⃣ Principles and Economic Outlook
💡 Structural Causes of Semiconductor Export Decline and Market Changes
The phenomenon of semiconductor exports turning to a decline after 15 months is a result of several structural factors and market environment changes acting in combination.
First, saturation of the global IT device market and slowing demand are acting as major causes. PC, tablet, and other device sales, which had surged during the COVID-19 pandemic due to remote work and education, are normalizing and decreasing. According to market research firm IDC, global PC shipments in Q1 2025 decreased by 5.8% compared to the same period last year. Additionally, the smartphone market is stagnating due to extended replacement cycles and reduced functional differentiation. This slowdown in major IT device markets directly affects memory semiconductor demand. In particular, DRAM and NAND flash memory semiconductors, where Korea has strengths, are closely related to the demand for these devices.
Second, concerns about semiconductor oversupply and inventory adjustment issues are having an impact. Over the past two years, global semiconductor companies have made large-scale facility investments to respond to the AI boom and accelerated digital transformation. However, as actual demand falls short of expectations, concerns about oversupply are being raised. Particularly in the memory sector, supply pressure is increasing due to the expansion of production capacity by Chinese companies. As a result, major buyers are showing cautious attitudes such as inventory reduction and purchase delays, which are leading to short-term demand decreases. Samsung Electronics and SK Hynix are also reviewing production volume adjustments and investment plans in response to these market conditions.
Third, semiconductor price declines are affecting the decrease in export amounts. Due to slowing demand and increasing supply, the prices of major memory semiconductor products are showing a downward trend. According to market research firm TrendForce, the average price of DRAM in Q1 2025 decreased by about 8% compared to the previous quarter, and NAND flash by about 10%. Export statistics are calculated on a monetary basis, so even if volume is maintained, the total export amount may decrease due to unit price declines. In particular, the intensification of price competition due to low-price offensives from Chinese companies is accelerating this unit price decline trend.
Fourth, structural changes in the global semiconductor industry and reorganization of the competitive landscape are progressing. As semiconductor demand is being reorganized around AI and data centers, demand is increasing for special-purpose semiconductors such as HBM (High Bandwidth Memory) and AI accelerators, shifting from traditional memory-centric demand. Additionally, the trend toward localization of semiconductor production (reshoring) is strengthening due to US-China technology conflicts and supply chain risks. These changes are becoming structural challenge factors that could weaken Korea's traditional memory semiconductor strengths. In particular, global competition is intensifying as the US, Europe, Japan, and China implement massive subsidies and support policies to foster their domestic semiconductor industries.
These structural factors show the mid to long-term challenges faced by the Korean semiconductor industry beyond the short-term decline in semiconductor exports. In particular, how to secure new growth engines beyond the existing memory-centric business structure emerges as an important task.
💡 Impact of China's Low-Price Offensive and Technology Catch-up
The low-price offensive and technology catch-up of Chinese semiconductor companies are acting as direct threat factors to the Korean semiconductor industry.
First, China's semiconductor rise policy and large-scale investments are changing the competitive landscape. Under the 'Made in China 2025' and 'Semiconductor Self-Sufficiency Rate Improvement' policies, the Chinese government has created a semiconductor industry development fund of about $150 billion and is providing various support measures such as tax benefits and subsidies. In particular, they are accelerating the building of their domestic semiconductor ecosystem in response to US technology sanctions. Based on this support, Chinese memory semiconductor companies such as YMTC (Yangtze Memory Technologies) and CXMT (ChangXin Memory Technologies) are rapidly growing and continuously expanding their production capacity.
Second, Chinese companies' low-price strategies are leading to market share expansion. Chinese memory companies are employing strategies to supply products at prices 20-30% lower than Korean companies by utilizing government subsidies and low-wage structures. Although there is still a gap in technological completeness and quality, they are increasing their market share using price competitiveness as a weapon, especially in price-sensitive markets such as low-cost PCs, smartphones, and IoT devices. According to market research firm TrendForce, the global market share of Chinese memory companies rapidly increased from 3% in 2023 to 8% in Q1 2025.
Third, the rapid narrowing of the technology gap is even more concerning. In the past, Korean companies had technology that was 2-3 generations ahead of Chinese companies, but recently this gap has narrowed to within 1 generation. Chinese companies are rapidly acquiring technology through the recruitment of high-level personnel, acquisition of overseas companies, and reverse engineering. In particular, YMTC has succeeded in developing 232-layer 3D NAND flash, the latest process technology, and CXMT has also started mass production of 16Gb DDR4 DRAM. This means that the technological advantage of Korean companies is no longer absolute.
Fourth, domestic company preference policies in the Chinese domestic market are also challenge factors. China is the world's largest semiconductor consumer, accounting for about 40% of global semiconductor demand. Recently, the Chinese government has strengthened policies encouraging the preferential use of domestic products in the public sector and state-owned enterprises. As a result, Korean companies are facing market share decline pressure in the world's largest market. In particular, as Chinese smartphone manufacturers such as Huawei, Xiaomi, and OPPO expand the use of domestic semiconductors, major customers of Korean companies are decreasing.
China's challenge can be seen as an all-around pursuit including technological capability and production capacity beyond simple price competition. Particularly if competition starting from the low-price market gradually expands to the medium and high-price markets, it could be a serious threat to the profitability and market position of the Korean semiconductor industry.
💡 Impact of US Tariff Policies on the Korean Semiconductor Industry
The Trump administration's protectionist policies and the possibility of tariff imposition are emerging as new threat factors to the Korean semiconductor industry.
First, there is a need to examine the direction of new US tariff policies and their impact on the semiconductor industry. President Donald Trump has mentioned that he could impose tariffs of 10-20% on all imported goods and up to 60% on Chinese products. Although no specific tariff plans for semiconductors have been announced yet, considering the 'America First' stance of the Trump administration, the possibility of tariff imposition on core industrial products including semiconductors cannot be ruled out. In particular, the US has set increasing semiconductor self-sufficiency as a core task of national security and economic security, and is likely to implement various policies to reduce dependence on foreign countries.
Second, if tariffs are imposed, a direct impact on Korean semiconductor companies' exports to the US and profitability is expected. The US is an important export market for Korean semiconductors, accounting for about 15-20% of total semiconductor exports. Currently, semiconductor products are exported duty-free under the Korea-US FTA, but if wide-ranging tariff impositions become a reality, price competitiveness could be weakened. For example, if a 10% tariff is imposed, Korean semiconductors would be at a price disadvantage compared to US-made or US-produced semiconductors of the same performance. This could lead to a decline in US market share, especially for commodity memory products with high price sensitivity.
Third, global supply chain reorganization and reshoring pressure are expected to strengthen. To avoid tariffs, Korean companies may face pressure to increase the proportion of production in the US. In fact, Samsung Electronics is building a large-scale semiconductor factory in Taylor, Texas, and SK Hynix is also reviewing investments in the US. Such expansion of overseas production could increase the burden of large-scale investment in the short term and lead to concerns about domestic production base and job reduction in the long term. Additionally, production in the US could act as a factor increasing production costs such as labor and land costs, leading to overall profitability deterioration.
Fourth, there is a possibility of intensifying the 'sandwich' dilemma amid US-China conflicts. Korean semiconductor companies are conducting important business in both the US and China, and may face difficult choices if technological and trade conflicts between the two countries intensify. The strategic position of Korean companies is narrowing between US policies restricting advanced technology exports to China and China's policies strengthening preference for domestic companies. This implies the risk of weakening positions in both giant markets. Particularly if the Trump administration further strengthens technology sanctions against China, additional constraints may occur in Korean companies' business with China.
US tariff policies are a significant variable that can affect the fundamental business structure and strategy of the Korean semiconductor industry beyond direct export cost increases, including global production base reorganization, investment strategy changes, and technology cooperation directions. In particular, uncertainty is expected to continue until the specific policy direction of the Trump administration is confirmed.
4️⃣ In Conclusion
The phenomenon of semiconductor exports turning to a decline for the first time in 16 months should be taken as an important warning signal for the Korean economy. This shows the structural changes in the global semiconductor industry and the 'dual risks' facing Korea beyond a simple cyclical adjustment. The dual challenges of China's low-price offensive and technology catch-up, and US protectionist policies are threat factors that could have a significant impact on the future of the Korean semiconductor industry.
In the short term, slowing demand in PC and smartphone markets, semiconductor price declines, and inventory adjustments have affected export declines. However, the more fundamental problem is the change in the global semiconductor competitive landscape. China is achieving rapid technology catch-up and production capacity expansion based on large-scale government support, and is expanding market share with a low-price strategy. At the same time, the US is strengthening protectionist policies through tariff impositions on imported goods along with fostering its domestic semiconductor industry.
This situation suggests that the Korean semiconductor industry needs a fundamental review of its existing memory-centric business structure and global export strategy. In particular, the following strategic responses are required.
First, strengthening competitiveness through technological innovation and differentiation is essential. It is necessary to escape from simple price competition by securing technological advantages in high value-added fields such as HBM (High Bandwidth Memory), advanced process technology, and AI-specialized semiconductors. In particular, expansion into next-generation memory and non-memory areas is needed.
Second, strategic diversification of production bases is necessary. There is a need to expand production bases in major markets such as the US and Europe to respond to tariffs and trade barriers, while utilizing the support and incentives of local governments. However, a balanced approach that maintains connectivity with the domestic industrial ecosystem in this process is important.
Third, strengthening global cooperation networks and securing key positions in the value chain are important. It is necessary to build cooperative relationships across the entire semiconductor ecosystem including advanced equipment, materials, and design, and to strengthen competitiveness through technological alliances. In particular, ways to jointly respond to China's challenges through strategic cooperation with the US, Japan, and Europe should be explored.
Fourth, government-level industrial policies and support reinforcement need to be backed up. Companies' competitiveness strengthening and global challenge response should be supported through tax benefits, R&D support, human resource development, and diplomatic efforts. In particular, inter-governmental negotiations and FTA utilization methods in response to US tariff policies are important.
The semiconductor industry is a core axis of the Korean economy, and this export decline should be taken as an important signal directly related to the future of the national economy beyond short-term economic indicator changes. Until now, the Korean semiconductor industry has maintained global leadership by overcoming numerous crises and challenges. The current new challenge of 'dual risks' should also be overcome through technological innovation and strategic responses, and used as an opportunity for industrial advancement and competitiveness strengthening.