Korea in the Tech Crossfire: Strategic Responses to the US-China Decoupling in Batteries and Semiconductors

Abstract

China and the United States are both pursuing strategic de-risking to navigate the murky waters of their relationship, fraught with conflict but bound by trade. De-risking is essentially a kind of industrial policy that focuses on dominating advanced technologies and industries, protecting technologies and markets, and courting the support of like-minded nations.

Washington’s de-risking strategy for the semiconductor and battery sectors focuses on bolstering the competitiveness of American industries via internalization, supply chain diversification, and deeper partnerships with allies and friendly nations. China meanwhile is working to navigate the US sanctions regime on technologies and supply chains by establishing China-centered industrial ecosystems and weaponizing key battery inputs, such as rare earths and other important minerals.

In the chip sector, the reconfiguration of supply chains would simultaneously feature an accelerated decoupling in cutting-edge nodes and the creation of alternative supply chains in Southeast Asia and India that support mature nodes. Battery supply chains are likely to be reshaped by the rise of major regional blocs or markets (encompassing China, South Korea, and Japan) and concentration of technologies and manufacturing capacity in a few multinational corporations.

Korea should pursue a five-pronged industrial policy to respond to these developments. First, it needs to invest in the establishment of vertically integrated industrial clusters. Doing so could transform the country into a trusted hub and middleman. Second, the Korean government should adopt an industrial policy that fosters these clusters. Third, Korea should strive to become a major production hub capable of meeting the high standards necessitated by new protectionist policies. Fourth, Korean firms should establish overseas bases of these integrated clusters as well. Finally, Korea should work to promote green technology partnerships as a viable alternative to the current international trade order. Only with a multifaceted and systematic de-risking policy can Korea hope to overcome the challenges posed by the fragmentation wreaking havoc in contemporary supply chains.

Thank you for reading this abstract of a report from the Korea Institute for Industrial Economics and Trade!

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Keywords: semiconductors, chips, batteries, EVs, China, US, Korea, US-China conflict, de-risking, supply chains, supply chain risk, supply chain diversification, industrial policy, supply chain weaponization, Korea, KIET

JEL Classification: L52, L62, L63, L65, L72, F51, F52