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Semiconductor shortage: US-China relations threatening Korea’s chip, battery industry, says Bank of Korea

Semiconductor shortage: A senior researcher at the Bank of Korea warned that Korea’s export-oriented economy could be impacted by US-China relations and geopolitical conflicts. Kim Woong, Director General of the Bank’s research department, said that the country’s key export industries such as semiconductors, electric vehicles, and secondary cell industries are highly dependent on raw material imports and could suffer from the fragmentation of the global trade regime.

Korea vulnerable to changes

Kim also noted that Korea’s small open economy, relying heavily on exports of IT, electric vehicles, and batteries, makes it vulnerable to changes in the global supply chain. He suggested that Korea adapt by closely monitoring policy changes of major nations and participating in global discussions.

Semiconductor shortage impacts automobile manufacturing

According to the Korea Customs Service, 81.5% of rare earth element imports and 21.9% of aluminum imports came from China in 2022. Kim warned that despite efforts to diversify sources, a price hike cannot be avoided as Korea lacks bargaining power. China’s electronic vehicle and secondary cell industries are rapidly growing, making them a formidable competitor for Korea, which is globally competent in semiconductors.

Opportunities for Korea’s semiconductor and electric-vehicle industries

However, the fragmentation of the global supply chain could also present opportunities for Korea’s semiconductor and electric-vehicle industries to enhance their technological competence and penetrate the US market if China loses its market share. On the other hand, it could also result in the decline of the domestic market as companies expand overseas, leading to job cuts in related industries.

Chinese economy a ‘short-term risk’

Kim highlighted the reopening of the Chinese economy as a short-term risk for the global economy, which may ease supply chain disruptions but increase raw material demand and inflation volatility in major countries. He recommended that Korea adopt a new perspective in analyzing changes in the global supply chain as it recovers from the pandemic, while closely monitoring policy changes and participating in global discussions.

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