The U.S. has long imposed restrictions on China's semiconductor industry. In October 2022, the U.S. introduced comprehensive chip export restrictions against China, aiming to prevent Mainland China from obtaining advanced semiconductor chips, technologies, equipment, and talent. At that time, factories of Samsung, SK Hynix, and TSMC in Mainland China were granted a one-year exemption. In October 2023, as the exemption was about to expire, the South Korean government announced that Samsung and SK Hynix had obtained "Validated End-User" (VEU) authorization, which granted them indefinite exemptions. TSMC confirmed in May of last year that its wafer plant in Nanjing had also received VEU authorization. However, recently, Kessler, the head of the export control department of the U.S. Department of Commerce, has indicated to these three companies that the U.S. wishes to revoke these exemptions.

U.S. Actions and Rationale

A spokesperson for the U.S. Department of Commerce stated that semiconductor manufacturers will still be able to conduct business in Mainland China, and emphasized that the "new enforcement mechanism is consistent with the licensing requirements applicable to other semiconductor companies exporting to Mainland China, ensuring that the U.S. has equivalent and reciprocal procedures in export approvals." This indicates that the U.S. is attempting to strengthen restrictions on China's semiconductor industry through a unified export control standard, in order to safeguard its so-called "national security" and economic interests.

South Korea's Reaction and Response

South Korea's trade negotiator and Minister for Trade Negotiations of the Ministry of Trade, Industry and Energy, Yoo Han-kyu, expressed that he will voice concerns over the U.S. 's possible revocation of foreign semiconductor manufacturers' exemptions in China during the third round of U.S.-South Korea tariff negotiations. He will convey the industry's worries and make every effort to protect the interests of South Korean companies. Yoo Han-kyu emphasized that he will adopt a "pragmatic approach based on national interests" in trade negotiations with the U.S., calling on U.S. lawmakers to create a "stable" and "predictable" environment for South Korean companies investing in the U.S. South Korea currently faces a 10% "minimum benchmark tariff" from the U.S., as well as tariffs of 50% and 25% on steel and automobiles, respectively. Regarding the 25% "reciprocal tariff" that was suspended for 90 days, the U.S. and South Korea agreed during their first round of trade negotiations in late April to develop a comprehensive plan covering tariffs, non-tariff measures, economic cooperation, and other trade issues by July 8.

Impact and Outlook

The U.S. 's move to revoke exemptions for TSMC, Samsung, and others in China will have a significant impact on the global semiconductor industry landscape. On one hand, it will further intensify trade tensions between the U.S. and China, subjecting China's semiconductor industry to greater external pressure. On the other hand, it may also trigger trade frictions between South Korea and the U.S., affecting their economic cooperation. In addition, this action could destabilize the global semiconductor supply chain, increasing operational costs and market uncertainties for companies.

In the long run, the U.S. 's restrictive measures may prompt China to accelerate the process of independent innovation and domestic production in its semiconductor industry, reducing its reliance on foreign technologies and equipment. Meanwhile, the global semiconductor industry may also expedite its diversified layout, lessening its overdependence on U.S. technology to cope with potential similar risks in the future.

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