South Korea Should Choose Friends Over Foes for Semiconductor Production

South Korea stands at a strategic crossroads in the global semiconductor race. As the United States refines its semiconductor export controls and expands its global AI alliance strategy under the AI Action Plan, South Korea should recalibrate its semiconductor strategy to reduce overreliance on China, both as a supplier of critical raw materials and as a key market for chip exports. To remain a trusted partner in the U.S.-led AI alliance and protect the long-term competitiveness of its chipmakers, Korea should accelerate efforts to diversify inputs, selectively restrict advanced technology exports to China, and deepen cooperation with the United States and allies.

Semiconductors, especially advanced memory chips like HBM and DDR5, are a central pillar of South Korea’s export economy. In 2024, semiconductor exports reached $141.9 billion, a 43.9 percent year-on-year increase, primarily stimulated by global demand for AI and datacenter infrastructure. China alone accounted for $46.6 billion (32.8 percent) of these exports, making it the largest export market by far. In comparison, the United States accounted for just $10.7 billion (7.5 percent).

Such outsized commercial exposure to China leaves Korea vulnerable to losing market share to state-backed Chinese competitors. Beijing’s drive for semiconductor self-sufficiency, backed by more than $150 billion in public investment, has already enabled domestic firms like YMTC and CXMT to narrow the gap in NAND and DRAM memory technologies.

As these firms improve production quality and size, Korea’s market share in China may shrink—similarly to how foreign suppliers were pushed out in industries like solar panels and telecommunications once Chinese competitors matured. As China gradually phases out imports of foreign chips, Korea’s current export volumes will become increasingly unsustainable.

At the same time, Korea’s chip production is heavily dependent on Chinese-sourced raw materials. As of 2024, 47.5 percent of its rare earth inputs, critical for advanced semiconductor fabrication and packaging, originated from China. This dependence exposes Korea to considerable risk, particularly given Beijing’s willingness to leverage its control over these resources, as it did with gallium and germanium in July 2023.

Beyond the threat of direct supply shocks, China also enforces a strict export licensing regime for rare earths and other critical materials. Exporters must obtain government approval for each shipment, disclosing transaction volumes and customer identities, which gives Chinese authorities visibility into global supply chains. This system enables Beijing to trace the downstream use of Chinese materials and potentially retaliate against manufacturers whose products are shipped to strategic rivals, such as the United States.

As Korea deepens its alignment with the U.S. semiconductor strategy, it becomes increasingly vulnerable to sudden license denials that could disrupt access to key upstream materials. Potential disruption would ripple across Korea’s chipmaking ecosystem, affecting not only Korean firms but also U.S. technology companies that rely on Korean hardware. SK Hynix and Samsung supply HBM to U.S. leaders in AI hardware such as Nvidia, Microsoft, and Broadcom, and most recently also to Tesla, forming an integral layer of the global AI stack. Therefore, Korea’s vulnerability is both a national and international concern.

To safeguard the long-term resilience of its semiconductor industry, South Korea should deepen semiconductor cooperation with the United States and allies under a shared techno-economic alliance framework. This requires not only securing inputs through friend-shoring but also aligning export controls with U.S. standards.

At the input level, Korea should treat its overreliance on Chinese raw materials as a national security vulnerability. While full decoupling from China is unrealistic, particularly for critical inputs like gallium, Seoul should reduce its exposure to the Chinese market to sustain global semiconductor leadership.

Korea is already taking steps in this direction. Seoul aims to reduce reliance on Chinese imports of key industrial materials from 70 percent to 50 percent by 2030. To support this transition, the Korean government has also pledged to invest more than 55 trillion won (approximately $37.9 billion) in financial support and incentives to diversify import channels and boost domestic production of critical raw materials in strategic sectors such as semiconductors.

Additionally, Korea is part of the proposed “Chip 4” alliance, which focuses on coordinating semiconductor supply chain security and technology cooperation, alongside the United States, Japan, and Taiwan. It has already started exploring joint projects with regional allies like Japan and Singapore, including pooled procurement initiatives to secure essential raw materials. This approach embeds Korean manufacturers within a trusted, alliance-based supply chain network, reducing their reliance on geopolitically sensitive locations.

Furthermore, Korea should continue exporting to China, but calibrate its semiconductor exports to align with the principles of the U.S. export control regime—under carefully designed conditions that prioritize long-term industrial security over short-term gains.

In particular, Seoul should prohibit the transfer of technologies with dual-use military potential. Such guardrails would not only help slow China’s technological catch-up but also reinforce Korea’s position as a trusted partner in the U.S.-led AI supply chain and expand its access to allies’ markets, which would gradually offset the potential decline in exports to China.

To ensure export stability amid U.S.-China tensions, Korea should continue to shift away from dependency on the Chinese market. Reducing exposure to China not only mitigates the risk of supply chain disruptions but also strengthens trust with the United States, which prioritizes secure sourcing in its AI and semiconductor partnerships.

Seoul should frame its semiconductor cooperation with Washington as part of a broader “chips-for-trade” framework, guaranteeing uninterrupted exports while restricting blanket tariffs on strategic Korean exports. By positioning itself as a reliable supply chain partner, Korea can deepen trust with the U.S.-led alliance and remain at the heart of global AI infrastructure.