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'Sugar-coated poison pill'

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By Shim Jae-yun

The U.S. CHIPS and Science Act has triggered ferocious controversy here, placing major chip firms into a serious dilemma. The Biden administration cannot deflect criticism for demanding seemingly "unfeasible" requirements on the companies winning subsidies by investing in America. Media outlets in the U.S. and its allies such as South Korea and Taiwan are crying foul at the act.

The U.S. has unveiled the act with which it aims to dominate the global semiconductor sector comprising all processes from design through to manufacturing. Yet the ambitious bid has faced a fierce backlash from the beginning.

U.S. President Joe Biden is most accountable for triggering the dispute. The U.S. Department of Commerce announced conditions for subsidies for the $53 billion act late last month.

Under the guidance, the grants should be offered first to firms helping the U.S. to develop state-of-the-art weapons. And the firms receiving more than $150 million will have to pay excess profits (up to 75 percent of the subsidy) to the U.S. administration and offer information regarding their clients, equipment and materials.

The recipients also need to pay wages, abide by rules and set up nursing facilities as demanded by unions. These conditions are not an easy pill to swallow for Korean chip firms. Even the Wall Street Journal (WSJ) of the U.S. published an editorial critical of such a decision, describing it as "progressive priorities via corporations."

As the WSJ put it, we cannot help but doubt the policy was designed to do anything more than maintain the upper hand over China in the lead-up to the 2024 U.S. presidential election. Recipients are prohibited from expanding semiconductor facilities in China in the 10 years to come. The U.S. has cited the need for its policies as being for the sake of its economy and national security while coming up with the subsidy plan.

Yet, the U.S. action will seriously undermine the managerial self-reliance of the relevant companies. And the firms become vulnerable to the possible leaking of key technologies requiring the highest degree of confidentiality. This will eventually deal a fatal blow to their survival. The Biden administration has invited criticism for its self-centered attitude with the motto of "Make America Great Again" (MAGA) as "abhorrently" pursued by the former Donald Trump administration.

Most Koreans vividly remember the Joe Biden who highly appreciated Korean entrepreneurs of Samsung, Hyundai Motor and SK for their investments in the U.S. during a summit meeting with then-President Moon Jae-in in May 2021. Samsung is currently constructing a $17 billion chip plant in Taylor, Texas, while SK hynix is poised to choose a site for a packaging factory soon.

They have significant chip production lines in China with Samsung manufacturing 40 percent of NAND flash and SK hynix producing about half of its DRAM chips there.

The U.S. move has caught the domestic chip companies off guard, prompting them to weigh seriously their investment plans in the U.S. They have been pressed to join the U.S.-led chip alliance comprising major rivals from the U.S., Japan and Taiwan.

In this vein, it is not too much to say that the U.S. offer of the subsidies is nothing but a "sugar-coated poison pill."

The U.S. has been pushing for the "chip alliance" to outmaneuver China in the hegemonic technology race. This has been a core strategy of the Biden administration's plan to focus on rejuvenating the U.S. manufacturing sector to buttress middle-class voters ahead of the presidential election.

However, its America-first policy that prioritizes the interests of its industries and workers only while demanding its allies play greater roles in reining in China will inevitably fan anti-American sentiments among its allies, thus weakening relations.

It is high time for the Korean government and its businesses to handle the matter squarely to prevent the semiconductor industry from being driven into a quagmire. The U.S. should not repeat its discrimination against Korean companies as it did with Korean-made electric vehicles with the introduction of the Inflation Reduction Act (IRA) last year.

The author is chief editorial writer of The Korea Times.

Shim Jae-yun


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