US to allow South Korean, Taiwan chip makers to keep operations in China

The Biden administration plans to allow top semiconductor manufacturers from South Korea and Taiwan to maintain and expand their existing chip-making operations in China without US reprisals, according to recent remarks by a senior Commerce Department official.

Some analysts say the move will weaken US export controls designed to slow China’s technological advance, The Wall Street Journal reports.

Alan Estevez, undersecretary of commerce for industry and security, told an industry gathering last week that the administration intended to extend existing exemptions from a US export-control policy designed to restrict companies from selling chips and chip-making equipment to China, according to several attendees.

Last October, the US implemented curbs on China’s semiconductor sector but it also provided one-year exemptions to several companies—including South Korea’s Samsung Electronics and Taiwan Semiconductor Manufacturing —that have invested billions of dollars to build plants in China.

Those exemptions were set to expire in October. Estevez told a meeting of the Semiconductor Industry Association, a trade group, that the exemptions would be renewed for the foreseeable future, according to the attendees. The Commerce Department declined to comment.

The status of the exemptions was closely scrutinized by companies and foreign governments to see how strictly the US export curbs would affect investments in China beyond the fall.

The move to extend the exemptions, rather than winding them down, amounts to a recognition by US authorities that efforts to isolate China from high-tech goods are more difficult than anticipated in a highly integrated global industry, according to industry executives. It also comes as some foreign businesses bristle at Washington’s expanding interference in their operations.

The US has sought to keep advanced chips out of Chinese hands by limiting the exports of chips and related chip-making equipment not only by American manufacturers but also those made by allies.

The US has influence over Korean and Taiwanese chip makers because the companies rely on technology and equipment developed or manufactured by companies from the US, as well as from the Netherlands and Japan, where the governments have agreed to join the US export-control efforts.

US and foreign chip makers have resisted US efforts to limit their business with China. Asian and European governments have also pushed back. The most vocal criticism has come from South Korea. China is by far its largest export market. Seoul, a close US military and economic ally, is also careful not to anger Beijing, which has a strong influence over North Korea.

US officials in recent weeks said the US doesn’t seek to decouple from China. National security adviser Jake Sullivan said in an April speech that Washington’s strategy is to limit restrictions to highly strategic technologies with “a small yard, high fence.” Treasury Secretary Janet Yellen has said in multiple speeches a full separation from China’s economy will be disastrous for both countries.

Others in Washington, particularly Republican lawmakers, want tougher stances on China. Sen. Marco Rubio (R., Fla.), in a May 30 letter, urged Commerce Secretary Gina Raimondo to strengthen the US controls over technology exports, including chips: “Companies are hard at work to weaken and circumvent the rule’s export controls.”

“You can’t control technology when two huge firms get to do whatever they want,” said Derek Scissors, a senior fellow at the American Enterprise Institute, a conservative think tank, and a former commissioner on the US-China Economic and Security Review Commission, an independent agency established by Congress.

“You look very weak,” Scissors added.

Samsung, for one, has said it has curtailed some of its operations in China and isn’t producing there the most advanced semiconductors that could aid China in advancing its military and other sensitive technologies such as quantum computing. Samsung didn’t respond to a request for comment.

The US is also pressuring Asian manufacturers to curb their operations in China through the $53 billion Chips and Science Act. While wooing Samsung and TSMC with the program’s incentives to build plants in the US, Washington has laid out expectations that such money would be awarded in exchange for companies limiting investment in China. Both chip makers have resisted such efforts.

The South Korean government and companies have asked the US to reconsider those restrictions. Industry executives say some Korean companies are so troubled that they are considering forgoing US federal-government aid, a move that could deal a blow to one of the administration’s signature programs.