The Camp David summit focused on China. US President Joseph Biden, South Korea President Yoon Suk Yeol, and Japanese Prime Minister Fumio Kishida agreed to deepen military cooperation to counter Beijing’s “dangerous and aggressive behavior.” Reinforced security cooperation requires technology cooperation — and this is a tricky tightrope.
The three countries aim to limit Beijing’s access to advanced technology that may have military uses and to limit its ability to leverage economic clout to bully its neighbors. But China is the top trading partner for both Japan and South Korea.
South Korea treads a fine line between the US and China when it comes to technology. About 60% of South Korean semiconductor exports went to China in 2021. Memory chip giants Samsung and SK Hynix produce large volumes there, up to 40% of Hynix’s output.
Yet South Korea’s chip industry also enjoys deep ties with the US. In 1965, the American company, Commy, set up Commy Semiconductors in South Korea as a subsidiary to assemble transistors. The subsequent climb of South Korea’s chip Industry from assembly to design and manufacturing is credited to Kim Choong-Ki, who cut his teeth designing camera chips at Silicon Valley pioneer Fairchild Semiconductor. South Korea has now risen to become the global leader in memory chip production, accounting for 60% of the global market share.
Under President Yoon, South Korea has moved to mend its historic differences with Japan — and to reinforce its technology partnership with the US. On a previous trip to the US this year, Yoon said the two country’s security alliance should “evolve into a supply chain and future-oriented, innovative-technology alliance.” Eight US tech companies were investing $5.9 billion in South Korea, Yoon announced. Seoul’s goal is to construct a “silicon shield” reinforcing the US presence in the South Pacific.
Japan enjoys similar deep tech ties with both the US and China. During the 1980s, its semiconductor industry rose to domination. By 1988, Japanese firms accounted for 51% of worldwide sales. The Reagan administration feared that the US was losing technological superiority and that the loss of dominance in semiconductors would erode America’s military. Sound familiar?
A chip war erupted. Washington jawboned Japan to set minimum prices for chips it exported and to buy additional US chips. When that “deal” collapsed, Washington slapped tariffs on $300 million of Japanese exports. Japanese semiconductor firms later declined in the 1990s, but not because of US protectionism. It was the relative lack of innovation in the face of the fabless revolution led by Nvidia, Qualcomm, and Broadcom (with TSMC as the foundry) which ended Japanese dominance.
Today, Japan is working with the US and Korea on a joint semiconductor industrial policy. For Tokyo, this represents an opportunity to revive its still-flagging chip industry. For Korea, tech ties with Washington remain crucial to staying ahead in the chips race.
What comes next? Expect Japan and Korea to yield to US pressure to restrict exports of their most sensitive technologies to China, much as ASML of the Netherlands has done. For example, Japanese firm Nikon has world-class lithography capability, which the US will not want to reach Chinese hands. In return, expect US investment to flow to these countries and expertise to be exchanged.
A complete technology break with China is unlikely. Japanese and Korean companies will not close their Chinese foundries. For Washington, this is acceptable. As long as the Koreans and Japanese refrain from building leading-edge chips in China, little security threat exists.
But Japan and South Korea are likely to cut back on new tech investment in their Chinese facilities. They will favor plants in their own countries or other low-cost destinations such as Malaysia. They could even build facilities in the US to take advantage of subsidies on offer.
US protectionism will not win this chip war against China, just as it failed to prevail in the last chip war with Japan. Joint export controls may slow China down more than unilateral action but may, in the long run, prove counterproductive.
The only way to win is both to out-innovate and out-invest China. The US cannot do this alone. It needs to work closely with like-minded allies such as Japan and South Korea.
Christopher Cytera is a Non-Resident Senior Fellow at CEPA. He is a technology business executive with more than 30 years of experience in semiconductors, a veteran of successful start-ups such as Alphamosaic and Spectral Edge, as well as industry giants such as Broadcom and STMicroelectronics.
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.