Souring relations between the governments in Washington and Beijing have made businesses increasingly fretful about geopolitical risks. Asian nations that stand to benefit from strengthening ties to the West are, at the same time, cautious about alienating neighboring China.

From chip manufacturers like Samsung to battery makers like LG and SK, South Korean technology companies are increasing their dependence on the American and European markets. India is now becoming a considerable manufacturing hub for the West.

*China, meanwhile, is losing ground:

The world’s largest contract manufacturer, Taiwanese-based Foxconn, has expanded operations and built factories in India, Mexico, Thailand, and Vietnam. Shenzhen, where most Apple products are assembled today, is no longer the preferred location for new products and models.

*China’s economy slipped into deflation for the first time in more than two years, as prices fell in July. Youth unemployment has soared to record highs, hitting 21.3 percent in June.

Still, a few products can be sourced only in China. These include some processed rare earths and metals where Chinese companies dominate entire industries, such as the gallium and germanium used in chip production, and the lithium and graphite processed for electric-vehicle batteries.

In the U.S., the Biden administration is issuing new restrictions on American investments in specific advanced industries in China, a move that supporters have described as necessary to protect national security but that will undoubtedly anger the Chinese government.

The action is one of the first significant steps the United States has carried amid an economic conflict with China to clamp down on outgoing financial flows. It could set the stage for more investment restrictions between the two countries in the coming years.

Apple had considered using China’s YMTC’s NAND flash-memory chips for the current iPhone 14 until political coercion from U.S. lawmakers forced it to reverse direction.

The restrictions would prevent private equity and venture capital firms from investing in specific high-tech sectors, like quantum computing, artificial intelligence, and advanced semiconductors, to stop transferring American funds and expertise to China.

Also, the U.S. government is offering billions to attract Korean technology, but the companies must comply with the restrictions and limit partnerships with Chinese companies.

South Korea and India will benefit

From semiconductors and electric car batteries to biotech and telecoms, Korea’s conglomerates are crucial players in Washington and Beijing’s national security and industrial strategy sectors. South Korea has become a key battlefield in the intensifying U.S.-China tech war.

Chipmakers Samsung Electronics and SK Hynix, along with battery makers LG Energy Solution, SK On, and Samsung SDI, are set to receive billions of dollars in U.S. subsidies as the Biden administration seeks to attract Korean technology and manufacturing prowess and reduce the role of China in U.S. supply chains.

The South Korean government is extremely cautious not to upset its biggest neighbor. “We should not consider efforts to bolster the relationship with the United States as a move to disregard China,” finance minister Choo Kyung-ho told a parliamentary session in May. “We have never announced a plan to decouple from China, and we have no intention of doing so.”

The South Korean government is extremely cautious not to upset its biggest neighbor, China.

Samsung Hwaseong Campus. Credit: Samsung PR

Also, Yang Hyang-ja, a former chip engineer and Samsung executive who chaired a ruling party committee on South Korea’s semiconductor competitiveness until early this year said that measures to curb China’s ability to access or produce advanced chips risked damaging relations with its Asian allies.

While South Korea is weary of losing business with its biggest trading partner, some of its largest conglomerates welcome the opportunity to increase their trade with the Western economies significantly.

Exports of South Korean semiconductor products to China dropped from $36.12 billion in 2022 to $24.52 billion in 2023, a 32 percent decrease, according to China’s customs reports.

In addition to Taiwan, South Korea and Japan could become the leading providers of semiconductors and advanced electronics, and India could become the biggest assembly partner.

“South Korean economists, former and serving trade officials, and company executives all note that whether Beijing likes it or not, South Korea has already embarked on an unmistakable — albeit untrumpeted — pivot away from the Chinese economy,” writes Christian Davies, Financial Times Seoul correspondent.

Conversely, India found itself in a somewhat advantageous position due to the trade war. The country’s burgeoning tech sector saw increased opportunities as multinational corporations sought to diversify their supply chains away from China. India’s skilled workforce and growing digital ecosystem made it an attractive destination for tech investments.

A significant impact on Asian relations and supply chain

South Korea and Taiwan, significant exporters of electronic components and devices, experienced disruptions in their supply chains due to increased tariffs and trade barriers between the U.S. and China. This compelled them to diversify their markets and seek alternative partners, fostering greater self-reliance and resilience in their high-tech industries.

Meanwhile, countries like India capitalized on the trade war by attracting foreign investments and tech companies looking to relocate their manufacturing and operations away from China. India’s skilled workforce and growing tech ecosystem positioned it as an appealing alternative for companies seeking a new manufacturing base.

By: DocMemory
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