The 40-year-old agreement haunting Korea’s booming semiconductor sector

The foundations of South Korea's semiconductor industry, now a global powerhouse, were laid in the early 1980s through audacious bets by business magnates and strategic government backing. Samsung founder Lee Byung-chull and Hyundai founder Chung Ju-yung, despite the industry's dominance by the US and Japan, boldly entered the microchip business. This move was further facilitated by the Korean government's extensive support, including state-led R&D projects, low-interest loans, and tax incentives.

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No matter what anyone says, Samsung is getting into the semiconductor business, so run that in your paper.

The global landscape at the time played a crucial role. Japan had surpassed the US in the memory chip market, prompting the US to impose tariffs and later sign the 1986 US-Japan Semiconductor Agreement. This agreement limited Japanese DRAM exports and mandated increased imports of US chips, a move seen as part of a broader strategy to contain Japan's economic momentum. The void left by Japan's subsequent decline in the top semiconductor rankings was filled by South Korea.

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I’m not worried that semiconductor prices will drop, but that they’ll soar even higher.

However, the industry's success now faces new challenges. SK Group Chairman Chey Tae-won recently expressed concern over "chipflation," a scenario where rising semiconductor prices lead to increased costs for consumer electronics. He warned that if this trend worsens, South Korea could face geopolitical repercussions, potentially mirroring Japan's experience of being targeted by major powers like the US or China due to its market dominance.

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If chipflation gets any worse, we will inevitably face geopolitical repercussions. We’ll follow in the footsteps of Japan and end up in a situation in which the US or China will continue to harangue us.