South Korea, which has been reluctant to discuss the formation of a “Chip 4” alliance with the United States, Japan, and Taiwan because of concerns about a possible trade war with China, is joining the talks, sources told EE Times. 

The U.S., under the auspices of the American Institute in Taiwan, hosted a virtual, preliminary meeting of the U.S.-East Asia Semiconductor Supply Chain Resiliency Working Group on Tuesday to discuss how to strengthen supply chains in the semiconductor industry, the U.S. State Department told EE Times. Participants and observers from the U.S., Japan, the Republic of Korea, and Taiwan joined the discussion.

The alliance proposed by the U.S. would add to existing measures that curtail the advancement of China’s chip industry. South Korea, which relies on both China and the U.S. in semiconductor trade and manufacturing, will join initial negotiations on the creation of the Chip 4, Seok-Joong Woo, a trade, industry, and energy official with the South Korean embassy in Washington, D.C., said.  

“We have not decided to participate in the Chip 4 yet,” he said, adding that the date for the online meeting to consider the idea had not yet been decided. 

Woo commented in response to a Sept. 18 New York Times report that South Korean President Yoon Suk Yeol will join in the talks. Despite fears of angering China, President Yoon said it was “necessary” for the four governments to cooperate, according to the report.  

The Chip 4 initiative would create a supply-chain alliance of four chipmaking superpowers that excludes China, which has become a threat to U.S. dominance in the chip industry.  

The partnership would damage business at Samsung and SK Hynix, the world’s largest memory chipmakers, which count on China for sales and manufacturing. The two companies also rely on the U.S. for manufacturing technology and chip-design software. 

Alliance called into question 

The alliance remains a work in progress, and yet it might be ineffective, according to Paul Triolo, SVP for China and technology policy lead at Albright Stonebridge Group, a Washington, D.C., consulting firm.   

“It looks like the alliance, which on the U.S. side is led by the Department of State, will not deal with export controls,” he said. “The goals of the alliance, still not publicly stated and somewhat murky, appear to be to try to coordinate some elements of industrial policy around supply chains for on-shoring and ‘friend-shoring’ advanced manufacturing.” 

South Korea’s delay in taking part in the talks relates to concerns about a possible trade war with China, according to Matthew Bey, a senior global analyst for RANE Risk Intelligence, a geopolitical business consultancy. 

“Joining the Chip 4 alliance is a significant risk for South Korea as any moves to actually restrict chip sales to and investment into China risks triggering a trade war—with China seeing South Korean goods, regardless of sector, being boycotted,” he said. 

The U.S. will need to reduce the scope of the alliance to limiting China’s access to foreign chip technology, Bey said.  

“From the U.S.’s perspective, it’s probably not going to be an effective vehicle by itself to restrict China’s access to chips given Japan, South Korea, and Taiwan’s dependence on the Chinese economy and China’s likely coercive economic retaliation if the Chip 4 initiative makes substantive moves.” 

The administration of U.S. President Joe Biden has intensified a tech war with China that started with former President Donald Trump.  

Under the newly created U.S. CHIPS Act, semiconductor companies, including Samsung, SK Hynix, Intel, and Taiwan Semiconductor Manufacturing Co. (TSMC) are expected to face restrictions on upgrades to existing manufacturing operations in China.  

More recently, new restrictions from the U.S. Department of Commerce (DoC) on global exports of advanced chipmaking tech are expected to impair Chinese chip designers like Alibaba and Baidu.  

Further restrictions from the creation of a Chip 4 alliance would trade off advantages and risks, according to Bey. 

“The U.S. would be effective in ensuring China’s chipmakers are several generations behind Japan’s, South Korea’s, and Taiwan’s and that China’s most sensitive buyers (i.e., military-linked) do not have access to advanced AI and processing chips,” he said. “The biggest downside risk is that it stifles innovation, adds more costs to the industry, and triggers Chinese economic retaliation.” 

The U.S. is likely to pursue more restrictions as long as it holds a competitive advantage over China, Bey added. “China has shown little willingness to retaliate against the United States. U.S. export controls and sanctions are extremely powerful in the semiconductor industry due to the pervasive nature of the U.S. financial system globally and the dominance of U.S. companies, technology and IP in the semiconductor industry, making most semiconductor related applications subject to U.S. export controls.” 

ASML machines may be involved 

The key element of the Chip 4 alliance is China containment, according to Roy Lee, deputy executive director with the Chung-Hua Institution for Economic Research, a think tank that advises the Taiwan government.  

“It addresses shortage problems, investment review cases,” he said. “It shares information on what China is doing, trying to take technology or attract people.”  

“Whether there will be loopholes for China to get ASML machines. That’s probably the foundation for the Chip 4.”   

By EETimes