U.S. Commerce Secretary Howard Lutnick called on the 2nd for Samsung Electronics (005930.KS), SK hynix (000660.KS) and other Korean chipmakers to invest more in the United States, deepening the challenge facing Seoul. Both companies are spending tens of billions of dollars on U.S. facilities, but their outlays are smaller than those of Taiwan's TSMC and are concentrated in back-end packaging and non-memory production. That leaves them exposed if Washington specifically demands investment in front-end memory fabs.
At the heart of the tariff structure Washington envisions is a package approach that links capital spending to duties. Taiwanese companies including TSMC have been promised product tariff quotas of up to 2.5 times their facility capacity while new U.S. chip plants are under construction, and up to 1.5 times once the plants are complete.
The problem is the gap in scale. TSMC is building $265 billion worth of chip facilities in Arizona, and Lutnick said Taiwan plans to add $20 billion to $30 billion more. Samsung Electronics and SK hynix, by contrast, have invested a cumulative $37 billion and $3.9 billion in the United States, respectively. Matching Taiwan's commitment would require pouring in 6.5 times what the two have spent so far.
Another difficulty is the vague wording on semiconductors in the tariff agreement between Seoul and Washington. According to a joint fact sheet the two governments released last year, product tariffs imposed on Korean chips under Section 232 of the Trade Expansion Act will be set so that Korea is treated "no less favorably" than countries whose trade volume exceeds Korea's. Because Taiwan has typically exported more semiconductors than Korea, the market has read that as a pledge to apply the same chip tariff rate to both countries.
Soaring memory prices, however, have driven a surge in Korean chip exports. Korea's integrated circuit exports reached $149 billion in the first half of this year, overtaking Taiwan's $133 billion. Taiwan still ships more to the United States, but if Washington uses global exports as its benchmark, the existing agreement could effectively be nullified. Huh Yoon, a professor at Sogang University's Graduate School of International Studies, said the agreement with the United States is "less a fixed document than a living organism that keeps changing," adding that Seoul must press ahead with detailed negotiations over actual tariff rates, duty-free volumes and the scope of investment that will be credited.
Washington could also split semiconductors into memory and non-memory categories and impose separate duties as a way of pressuring Korea. If finished electronics containing memory chips are counted toward duty-free quotas, chip tariffs would ripple into other major Korean export items such as computers and wireless communications devices.
The facilities Samsung Electronics is building in Taylor and Austin, Texas, are a semiconductor research and development site and a foundry fab. The plant SK hynix is constructing in West Lafayette, Indiana, will handle back-end memory packaging exclusively. That structure gives Washington room to demand additional investment in front-end memory fabs as a condition for exempting memory products from tariffs.
A senior executive at a semiconductor equipment maker said that "no matter what pressure the United States applies, the basic structure of memory chips as a seller's market will not change," stressing that the government needs a finely tuned negotiating strategy.
