🚨 South Korea Reviews Semiconductor Material Tariff Cuts
Today Korean Economic News for Beginners | 2025.09.03
0️⃣ Easing Corporate Burden Amid US Pressure
📌 Reviewing 0% quota tariffs for 8 essential wafer production materials, but 33 trillion won support package execution still delayed
💬 The South Korean government is reviewing applying 0% quota tariffs on 8 key materials needed for semiconductor wafer production starting next year. This measure aims to reduce cost burdens on companies as external uncertainties grow due to President Trump's warning of 100% tariffs on semiconductors and the US strengthening regulations on Samsung Electronics and SK Hynix's Chinese operations. However, the actual execution of the 33 trillion won semiconductor support package announced last year is still progressing slowly, leading the industry to call for faster and more practical special support. While the semiconductor industry is enjoying a boom due to AI demand, Korean companies are caught in a sandwich situation at the frontline of the US-China conflict.
1️⃣ Easy to Understand
South Korea's semiconductor industry is in a difficult position between the US and China. The government wants to help companies by removing tariffs on key materials needed to make semiconductors.
Let me explain the current situation first. SK Hynix recorded its highest profits ever thanks to the AI boom, so Korea's semiconductor industry looks very good on the surface. But when you look deeper, there are many complex problems.
The biggest problem is pressure from the US. President Trump warned that he will put 100% tariffs on semiconductors. This means semiconductor prices could double. Samsung and SK Hynix are building factories in the US, so they will likely get tariff exemptions, but there's still a lot of uncertainty.
Also, as the US tries to limit China, our companies are getting regulated too. Samsung and SK Hynix have factories in China, but the US wants to limit these factories from using the latest equipment. If this happens, the Chinese factories can only make older products, which hurts their competitiveness.
In this situation, the government's solution is to cut tariffs on materials. To make semiconductors, you need thin silicon plates called wafers. The government wants to cut tariffs to 0% on 8 key materials needed to make these wafers. For example, silicon ingots, polysilicon, and various chemical materials.
When tariffs disappear, companies can import these materials more cheaply, reducing semiconductor production costs. Lower costs mean better price competitiveness, so they can compete better with foreign competitors.
But there's a problem. The government announced a 33 trillion won semiconductor support package last year, but it's being executed very slowly. Related bills are stuck in the National Assembly, and securing budgets isn't easy. Companies complain, "The announcements are grand, but we don't know when we'll actually get support."
In the end, cutting tariffs is a good start, but more comprehensive and faster support is needed.
2️⃣ Economic Terms
📕 Quota Tariff
A quota tariff is a system that lowers tariff rates for specific items for a certain amount or period.
- It's a policy tool that considers both protecting domestic industries and reducing costs.
- 0% quota tariff means you can import those items without any tariffs.
- It's usually applied to key materials that are difficult to produce domestically or are in short supply.
📕 VEU Status
VEU (Verified End User) is a "verified end user" status designated by the US.
- With this status, you can import advanced US equipment without separate permits.
- If VEU status is revoked, you need permits for each case, greatly increasing time and costs.
- Samsung and SK Hynix's Chinese operations currently face the risk of losing this status.
📕 Wafer
A wafer is a thin silicon disc that serves as the base for making semiconductor chips.
- It's made by cutting silicon ingots thinly, usually about 0.7mm thick.
- Complex circuits are etched onto wafers to make semiconductor chips.
- The larger the wafer size (8-inch, 12-inch, etc.), the more chips you can make at once, making it more efficient.
📕 Semiconductor Package Support
Semiconductor package support is a comprehensive plan prepared by the government to support the semiconductor industry overall.
- It includes research and development, workforce training, tax benefits, and infrastructure construction.
- In Korea's case, it was announced at 33 trillion won, but actual execution is progressing slowly.
- There are criticisms that it lacks speed compared to the US CHIPS Act and Japan's semiconductor strategy.
3️⃣ Principles and Economic Outlook
✅ Korea's Sandwich Dilemma in the US-China Conflict
Let's analyze the geopolitical risks Korean semiconductor companies face and their background.
First, US policies to contain China are directly affecting Korean companies. The US is restricting exports of advanced equipment to prevent China's semiconductor technology development. The problem is that Samsung and SK Hynix operate large production bases in China. Samsung's Xi'an factory handles over 40% of NAND flash production, and SK Hynix's Wuxi and Dalian factories also play important roles in DRAM production. If VEU status for these factories is revoked, importing the latest equipment will become difficult, potentially disrupting their technological competitiveness.
Second, China is also strengthening pressure on Korean companies for semiconductor independence. China is investing trillions of won in nurturing domestic semiconductor companies like YMTC and ChangXin Memory, trying to reduce Korean companies' market share in China. At the same time, China is showing moves to restrict Korean companies from sending profits earned in China back to Korea. This makes it difficult for Korean companies to reinvest profits earned in China into domestic research and development.
Third, as pressure from both sides intensifies, Korean companies' options are narrowing. The US demands "reduce Chinese business and invest more in America," while China pressures "increase local technology transfer and cooperate with Chinese companies." It's almost impossible to satisfy both demands. Since semiconductors require massive investment, it's difficult to give up either side, creating a dilemma.
As geopolitical conflicts intensify, Korean semiconductor companies will face greater difficulties in strategic choices.
✅ Effects and Limitations of Tariff Cuts
Let's examine the practical effects and limitations of semiconductor material tariff cuts.
First, there are clear cost-saving effects, but the scale may be limited. Current tariff rates on 8 semiconductor materials average 3-8%. Cutting these to 0% can save 3-8% of material purchase costs. For example, a company importing 1 trillion won worth of materials annually could expect cost savings of 30-80 billion won per year. This is certainly helpful, but considering semiconductor companies' annual revenues are tens of trillions of won, it's a relatively small effect.
Second, it's meaningful for securing cost advantages over competing countries. Compared to competitors like Taiwan's TSMC or China's SMIC, reduced material cost burdens can increase price competitiveness. Especially in commodity memory or foundry businesses, a few percent cost difference can be an important variable in winning orders. Also, maintaining cost competitiveness becomes more important as US tariff pressure intensifies.
Third, however, there are limitations in securing fundamental competitiveness. Tariff cuts have cost-saving effects but don't directly help technology development or production capacity expansion. The biggest challenge currently facing Korea's semiconductor industry is next-generation technology development and large-scale facility investment, which can't be solved by tariff cuts alone. Developing advanced products like AI semiconductors and HBM (High Bandwidth Memory) requires trillions of won in R&D investment.
Tariff cuts are helpful, but more comprehensive and large-scale support must accompany them to achieve real effects.
✅ Challenges and Improvement Directions for Government Support Policies
Let's comprehensively analyze the problems with Korea's semiconductor support policies and improvement directions.
First, the speed gap between announcements and execution is the biggest problem. More than a year has passed since the 33 trillion won support package was announced, but support that companies can actually feel hasn't begun in earnest yet. The Semiconductor Special Act is pending in the National Assembly, and the K-Semiconductor Belt project is also delayed in securing sites and building infrastructure. Meanwhile, the US CHIPS Act began executing large budgets immediately after announcement, and Japan also provided immediate support funds to TSMC's Kumamoto factory. This speed difference increases the risk of Korea falling behind in global investment attraction competition.
Second, there are many criticisms that support methods are too complex and conditions too strict. Current government support is divided among various ministries and agencies, requiring companies to go through complex procedures to receive support. Also, various conditions like investment promises, job creation, and technology transfer are attached, making it take a long time to actually receive support. In contrast, countries like Singapore and Ireland provide support quickly through one-stop services, succeeding in attracting foreign companies.
Third, long-term vision and consistent policy implementation are needed. The semiconductor industry requires long-term investment over 10-20 years, but government policies tend to focus on short-term results. There are also concerns that policy directions may change whenever governments change, making it difficult for companies to make long-term investment plans. Like Taiwan and Singapore, it's necessary to pursue long-term consistent policies based on bipartisan consensus.
For successful semiconductor support policies, three major challenges must be solved: speed, simplification, and consistency.
4️⃣ In Conclusion
Cutting semiconductor material tariffs is a meaningful start to ease the burden on Korean companies amid the US-China conflict, but more comprehensive and rapid policy support is needed to secure fundamental competitiveness.
Currently, Korea's semiconductor industry appears to be enjoying a boom on the surface, but looking deeper reveals complex challenges. The US is pressuring Korean companies as part of containing China, while China is trying to reduce Korean companies' influence to nurture its own companies. In this sandwich situation, Korean companies face a dilemma where it's difficult to satisfy both sides.
Tariff cuts are certainly a helpful policy. There are cost-saving effects of hundreds of billions of won annually, and it can increase price competitiveness compared to competing countries. But this alone isn't enough. Semiconductors are a technology-intensive industry where R&D investment and facility expansion are more important, but support for these areas is still insufficient.
The biggest problem is the execution speed of government support. More than a year has passed since announcing the 33 trillion won support package, but support that companies can actually feel hasn't begun in earnest yet. While support is delayed due to National Assembly delays, inter-ministry coordination, and complex procedures, competing countries are already attracting large-scale investments.
For Korea to maintain its position as a semiconductor powerhouse, several things need urgent improvement. First, the execution speed of support policies must be greatly increased. If execution is delayed after announcements, companies might miss investment timing. Second, support procedures must be simplified and one-stop services established. Third, long-term and consistent policy visions must be presented so companies can invest with confidence.
Companies should also be more active in securing their own competitiveness rather than just relying on government support. They need to build strength to respond to geopolitical risks through next-generation technology development, expanding global partnerships, and supply chain diversification.
In the end, tariff cuts are a good start, but more comprehensive and rapid follow-up measures must follow for this to have real effects. Now is the time for government and companies to join forces to firmly secure the future of Korea's semiconductor industry.
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