The global security environment has entered the “new normal” era with geopolitical confrontation and extreme competition in various fields of trade, industry, and technology. The intensifying U.S.-China rivalry and the impacts of the COVID-19 pandemic have raised barriers between countries, regions, and blocs amid growing uncertainties in global security due to nationalism and ideological conflicts. The ramifications of the Russo-Ukrainian war have created a security crisis in Europe which has also led to geopolitical uncertainty and a food·resource crisis at the global level. The prolonged battle has also dealt a blow to global optimists who had projected a stable and peaceful future for the post-Cold War era.

The globalization trend after the end of the Cold War guaranteed a free flow of labor, products, service, technology, and capital for the past 30 years. Regardless of the political system or ideology, countries imposed minimum tariffs and trade regulations while increasing interdependence and collective interest.

Along with the post-Cold War era, globalization represented the golden age of neo-liberalism. Nevertheless, the globalization engine has lost momentum with the recent emergence of exclusive protectionism and regional blocs. The main issues of such a transformation focus on conflicts to secure advanced science and technology, which has the potential to determine a nation’s future competitiveness and security. In the case of the U.S. and China, both countries utilize diplomatic means to exclude its competitor while securing advanced science and technology. The underlying implications of global technological competition seem to point to the erosion of the basic premise of a liberal trade order and cooperation in the field of science and technology. A new geopolitical mechanism of change using advanced technology is at work behind the decoupling phenomena caused by U.S.-China competition, termed “re-shoring,” “near-shoring,” and “friend- shoring.”

Semiconductors represent advanced technology displaying such changes. At present, semiconductors have become indispensable in digital society. Chips are essential components of most manufacturing products such as smartphones and automobiles. The development of high-tech fields, including aerospace, artificial intelligence, and autonomous driving systems, depends on the stable supply of high-performance semiconductors. Thus, securing semiconductor production supply chains has emerged as a top priority in the foreign policy of major countries. During the 2021 semiconductor supply and demand crisis, Washington summoned global semiconductor design and manufacturing companies to the White House on three occasions to request production and storage information. The first schedule of the ROK-U.S. summit, held in May 2022, began at the Samsung Electronics Pyeongtaek plant, which displays the status of semiconductors at the front line of diplomatic security.

Semiconductors have established themselves as a symbol of globalization where over 120 countries are involved in the trade of related markets (Jeong and Strumpf 2021). In fact, since the WTO Information Technology Agreement (1997) entered into force, semiconductor-related products, materials, and equipment have been subject to the lowest tariff rates in global trade (Oh Il-seok 2022, 3). This is why countries have maintained their interdependent semiconductor supply chains despite ideological and systemic differences under the long-standing free trade order since the post-Cold War. In other words, countries participating in the global semiconductor supply chain based on a highly efficient division of labor are closely interconnected as mutual consumers and suppliers.

However, the recent trend of de-globalization and U.S.-China strategic competition is rapidly dismantling the existing global semiconductor supply chain based on efficiency. A representative example is U.S. President Biden’s “Fab 4” proposal to Korea, Taiwan, and Japan in early 2022. The idea of semiconductor cooperation between the four countries, also labeled as the “Chip 4 Alliance,” was a proposal to combine U.S. design and source technology, Japanese semiconductor materials and equipment, and Korean and Taiwanese memory/non-memory semiconductor manufacturing capabilities.¹ Washington urged global semiconductor companies, including TSMC and Samsung, to invest in production facilities in the U.S. mainland, while expressing its intention to use Fab 4 to restructure an alternative supply chain by excluding China.

As a relatively recent issue, existing case studies regarding the Fab 4 are few in number. There is, however, previous research in international political studies examining the semiconductor industry with a focus on the importance of security. Such studies can be roughly classified into two camps. The first approach underlines the technical specificity of semiconductors, represented by Chris Miller’s “Chip War: The Fight for the World’s Most Critical Technology.” Even during the Cold War, semiconductors were critical technology that comprised the core of contention between the U.S. and Japan, and the U.S. and USSR. Now semiconductor technology has become a crucial method for “informationized” and “intelligentized” military competition (Miller 2022). Miller also emphasizes that semiconductors possess essential technology for securing emerging and disruptive technology for artificial superintelligence and quantum computing. He adds that the U.S. recognizing the threat posed by China’s emerging microchip ecosystem had to keep it in check. The U.S. focal point regarding the chip supply chain is “core profits and power,” closely related to military security rather than vulnerabilities.

The second approach underscores the regression to an era previous to globalization with the advent of a New Cold War and spheres of influence. Reshaping the global supply chain of all technologies and resources into two blocs led by the U.S. and China, neoclassical realists, including Fareed Zakaria are at the forefront of such studies. Zakaria points out that after the pandemic, the zero-sum game structure has gained more influence over the behaviors of state actors with a decisive impact on military strategy, the economy, and industrial technology (Zakaria 2020, 13). In 2014, Walter Russell Mead claimed “The Return of Geopolitics” based on cases of revisionists such as China, Russia, and Iran challenging the global order centered on the U.S. (Mead 2014, 69-79).²

On the other hand, this paper argues that the Fab 4 case should not be viewed as a specificity issue or through the geopolitical lens of de-globalization. The Fab 4 members are at the center of advanced technology with diversified negotiation abilities and strategies. Each member country strives to secure technological and economic interests by exercising competitive strength in the supply chain with the macro-level supply chain restructuring strategy, the niche market strategy based on indispensable technology, and the super-gap strategy. Hence, the U.S. Fab 4 initiative is not simply about gaining competitive advantage in a specific technology sector or reorganizing partnerships but it is a comprehensive issue of technology, economy, and security. This paper aims to present a “techno-geopolitical” perspective regarding the restructuring process of the semiconductor supply chain while examining the significance of the U.S. Fab 4 proposal in terms of international politics, along with considerations for Korea’s mid-to-long-term strategies.

Considerations for a Techno-Geopolitical Approach

Traditional geopolitics focused on how geographical conditions worked in international politics. The purpose was to study disputes and survival strategies of countries in relation to topography and the location of the ocean. Thus, attention has been paid to the ability or power to achieve the specific goal of preoccupying a physical space and place. The “state’s efforts to mobilize power resources and gain superiority by preoccupying a space favorable for survival,” which constitutes the concept of geopolitics, continues to be a valid proposition in the international political environment. Space, however, is no longer limited to land and ocean and has become an environment encompassing the exchange of knowledge, information, and data in digital space. Furthermore, securing power resources has become more about enhancing technological competitiveness in military power. More importantly, techno-geopolitics differs from traditional geopolitics as it highlights the deeply embedded, advanced science and technology in state power mobilization, influence projection, and diplomatic actions. Hence, techno-geopolitics emphasizes technological variables as decisive factors in a state’s trade, industry, and foreign security policy while closely associated with military security issues and alliances. In addition, techno-geopolitics is a theoretical approach to explain how advanced science and technology has developed into an indicator of national security from its former means of strengthening economic and military capabilities.

In reality, advanced economies such as the U.S. EU, China, and Japan are actively implementing policies to strengthen science and technology competitiveness as national strategies. Such policies not only include the expansion of R&D projects but also consider the ripple effects of enhanced competitiveness on the industry and economic security. In particular, regarding science and technology and trade diplomacy, countries are preparing national strategies to lead the global standardization process of emerging technologies.

This chapter focuses on the connection of technology, economy, and security issues witnessed in the recent U.S.-China competition for technological hegemony, and proposes a theoretical analysis framework for techno-geopolitics that is necessary to explain the complex features of such macro changes. Under the new geopolitical order with the U.S.-China competition, which differs from the Cold War and the post-Cold War era, it is necessary to look at the main driving forces, manifesting mechanisms, conditions, and the environment. This chapter, while focusing on the complex features of the techno-geopolitical approach, will discuss the connection between geopolitical discourse, geographical discourse, and technological sovereignty theory constituting techno-geopolitics, and the interaction of technology and politics, inseparability of economy and security, and the bloc-ization of industrial sectors.

The Interaction of Technology and Politics

As aforementioned, the term “techno-geopolitics” has mainly been used in science and technology communities and industrial circles, rather than the field of international politics.³ In Korea, a competitive advantage in advanced science and technology was a source of social innovation and power, and concepts such as “indispensability” and “non-replaceability” were highlighted to support claims for more public investment to enhance its industrial ecosystem. While underscoring the importance of advanced science and technology and its impact on international relations, the domestic approach lacked a balanced view of the positive or negative influences of global security situations and political judgments on technological development. In other words, Korea failed to grasp the bidirectional mechanism of mutual interaction between geopolitical structure and technological development.

It is thus necessary to focus on the two-way causal relationship between political and technological development. In fact, according to Dahlman (2007) and Khalid Khan et al. (2022), politics and technology are highly integrated, and differences in geopolitical risks and national interests accelerate competition among countries for technological development and accessibility. In addition, such technologies cause rapid changes in national sovereignty and geopolitical dominance and have a decisive impact on international relations and strategic alliances centered on the supply of critical technologies. On the other hand, as the mutual interaction of technology and politics may cause geopolitical uncertainty and risk, the international community faces the challenge of establishing interoperability amid intensified technological competition causing division (Blackwill and Harris, 2016).

The Inseparability of Economy and Security

Unlike geopolitics, which focuses on territory as an object of accumulating national wealth, geo-economics aims to amass wealth through ‘market domination.’ In addition, economic power for comprehensive security, including financial security, health security, human security, and military security, is emphasized. Geopolitics values military threats, but geo-economics underscores economic sanctions instead of military threats (Lim Jong-sik 2021, 39). In particular, it is hard to deny that the recent rise in economic security is closely related to geo-economics, which refers to “using economic means to promote and protect national interests and to produce geopolitical results favorable to one” (Blackwill and Harris, 2016). Furthermore, the manifestation pattern exhibits the appearance of “mercantile realism” based on “techno-economic security,” which differs from “structural realism” centered on military security (Shin Wook-hee 2021, 35-61). However, with techno-economic security expanding to blocs and alliances, technology has become more than a simple product and may function as a security strategic asset.

In other words, economy and security, which represented different fields, are now inseparable and interconnected, setting the course towards a transition period overwhelmed by security logic and resulting in weakened globalization. Furthermore, a rise in geopolitical tension accelerates the transformation of technologies that increase the security impact of advanced technologies with dual uses and weaponization of interdependence (Kim Yang-hee 2022). Therefore, it is necessary to focus on the trend of economic-security strategies that maximize national interests by using various economic and security policy measures and the role of core technologies as their primary means.

Industrial Strategies and Security

Securing superiority in key industries is more than industrial and economic strategies at the macro level and has emerged as a vital national security strategy. The so-called “industrial-technological security” approach calls for the need to implement science and technology, and industrial policies in tandem with diplomatic and security policies. The semiconductor shortage in 2021 and Japan’s export regulation of semiconductor materials, parts, and equipment in 2019 confirmed the consequences of unilateral dependence on core technology and raised the importance of securing sufficient options to develop and maintain its capabilities. Currently, securing the supply chain for strategic technology is one of the main issues of contention between blocs, including the U.S. and China. Meanwhile, discussions about stability and efficiency at the global level are on the back burner. In addition, global society seems divided on issues regarding international norms and governance surrounding the use of data, which is the basis of digital-based services.

In particular, semiconductors, which are both “general purpose technology”⁴ widely used throughout the industry, and also “core strategic purpose technology,” with a fatal impact on the national economy and maintenance capabilities in the event of an external shock, are highly susceptible to environmental changes in terms of specialization structure and production materials. Such technologies need to secure external supply chains because there is a limit to establishing an endogenous R&D ecosystem, which inherently contains threats such as technical uncertainty and asymmetry o f interdependence in the production process. Technologically advanced economies such as the U.S., Japan, and the EU focus on national survival and preparation for external shocks and operate related laws or define national core and strategic technology concepts suitable for national emergencies with a strategic system that detects in advance what areas will function as “critical” for their industry due to external environmental changes. Examples include strategic and opportunistic behaviors of other countries or disruptions in production and supply (Cho Yong-rae et al., 2020, 7). Thus, the protection, cultivation, and development of core industrial assets, and strategies to secure global competitiveness are being reinterpreted from a security perspective and are gradually incorporated into national strategies.

The Scope of Techno-Geopolitics and the Connection Between Its Discourses

Based on the preceding considerations, we can identify the comprehensive meaning of the techno-geopolitical discourses and the security values in each linkage sector. Technology security issues arise between geopolitical and technological sovereignty discourse, economic security discussions between geopolitical and geology discourse, and the need to foster and protect industrial security that reflects geology discourse and the technological sovereignty perspective. Technology security issues are drawing attention amid the rapid trend of de-globalization after the COVID-19 pandemic and uncertainties in U.S.-China competition over new technology innovation. Technological innovation has escalated to a life-or-death issue for national development and is at the forefront of U.S.-China competition.

Economic security discussions are being addressed at the national level and focus on “securing the lives, property, and safety of the people by utilizing available means from external economic tangible and intangible threats that jeopardize the safety of the country.” As a passive definition, economic security refers to comprehensive risk management of immediate threats to the national economy, such as responsive efforts to the urea solution shortage causing a logistics and distribution crisis and global semiconductor shortages.⁵ However, the active interpretation of economic security extends its meaning from a mere response to current risks to “comprehensive efforts to prevent potential threats to national security and the national economy from a long-term perspective and strengthen the country’s strategic autonomy.” Also, actively defined economic security not only secures access to critical tangible and intangible resources but also includes strategies for protecting and fostering strategically important “emerging technologies” in the future. Finally, in the case of industrial security, the current legislation roughly defines key national technologies from the perspective of defense and industry. In particular, industrial technology is the broadest concept, and within the concept of industrial technology, defense science technology and national core technology intersect while national core technology forms an intersecting relationship with defense industry technology.

The conceptual scope of techno-geopolitics and the structure of connections between its discourses is displayed in <Figure 1>. Applying this to the strategic competition between the U.S. and China today reveals a complex rivalry that is difficult to explain in individual paradigms, such as geopolitical, economic, and technology-oriented discussions. Regarding the U.S.-China digital technology competition, a type of “platform competition of alliances and diplomacy” is witnessed between countries and blocs with a more definite competition structure in geopolitics, non-traditional geopolitics, and post-geopolitics (Kim Sang-bae 2022).⁶

The Structure of Competition and Cooperation Among Great Powers to Strengthen Technological Security

Considering the limitations of the existing perspective, it is necessary to take notice of the macroscopic changes in technology and traditional geopolitical logic to explain the neo-geopolitical changes in the era of de-globalization. In particular, tension between the U.S. and China over key technology issues such as semiconductors shows that competition methods and means are shifting in the following three aspects:

First, unlike the “arms race” of the Cold War era, fierce “subsidy competition” has recently emerged between the U.S. and China to develop and protect core technologies based on national security considerations. Subsidy competition features a supply chain reconstruction and exclusion strategy to meet the challenge of the opponent and maintain one’s dominance. In particular, countries recognize the new security value of key general-purpose technologies, such as semiconductors, artificial intelligence, and 5G, for digital transformation societies. Also, government intervention in industries has become more accelerated and elaborate. If external forces target and control accessibility to key technologies linked to future growth engines with political intent, the fallout will reduce the country’s industrial competitiveness and long-term innovation capabilities. This is probably why major countries, including the U.S. and China, recognizing the security implications of recent high-tech supply chain issues, are responding with national urgency to economic security.

Second, there is a transition from “technology globalization” to “technology protectionism.” Unlike in the past, countries raising barriers since the COVID-19 pandemic has increased protectionism, especially in the high-tech sector. Science and technology, which was not confined to state borders became the objects of exclusive protectionism, restricting research exchanges and technology sharing at the global level. The addition of “technology nationalism” demands a resetting of goals for a “national development model based on science and technology.” The objective would be to facilitate strategic resource mobilization under national security goals for the creation of national wealth. The “technology globalization” perspective, which was a natural approach for the development of science and technology, is being replaced by “technology protectionism” by which the nationalist perspective is projected. Technology protectionists reject the liberal assumption that international cooperation in economy and technology will ease security competition between countries and are trying to include their voices in policymaking. As a result, the ongoing U.S.-China trade and technology war is seriously disrupting the transnational flow of capital, talent, and technology (Wong 2021). In particular, the United States, which is leading this shift, is showing an intensified isolationism that has become apparent under the Trump administration. While technological globalism encourages national power and leverage by gaining a larger international market share of technology (Kenedy 2013, 909-930), technological nationalism aims to gain substantial control over the standards by which knowledge is created, designed and manufactured with the purpose of to protecting domestic companies. Thus, technological nationalism seeks to increase autonomy from foreign technology dependence, spread knowledge among national users, and foster domestic science and technology capabilities (Cherniavska 2015, 5-12).

Third, there is a transition from military alliances to “technology alliance” and “strategic partnership.” The Biden administration, recognizing the limitations of the Trump administration’s protectionist measures against China, has recently enhanced cooperation with allies and friendly nations, creating a “bloc-ification of protectionism” with the protectionist front of “U.S. vs. China” developing into “U.S. bloc vs. China bloc” (Kim Yang-hee 2022). Accordingly, the Biden administration is pushing for closer partnerships with allies in high-tech areas beyond military cooperation. The scope of the “Quad” cooperation, consisting of four countries-the United States, Japan, India, and Australia-encompasses the task of preventing high technology from leaking through cyberspace, and operates as a close technology alliance with a geopolitical siege on China. AUKUS, a trilateral security pact among Australia, the United Kingdom, and the United States, is not only a military and information alliance but also a technology alliance. The partnership shares top-level technologies and information and manages supply chain stability under security values. The case of “cooperation in the core and strategic technology sectors,” which was the central issue of the Korea-US summit in May 2022, can be seen as a strategic partnership with a similar nature. In the past, the two countries focused on presenting legitimate goals and cooperation directions for coexistence and prosperity. The 2022 summit agreement differed as it “provides a stable and resilient supply chain from ‘external challenges’ that violate economic security” (Yoon Jung-hyun 2022, 1).

In the same context, the emergence of “ally-shoring” based on a “Trusted Value Chain”⁷ (TVC) following reshoring and near-shoring suggests that behind the decoupling caused by the U.S.-China competition, a new geopolitical logic is at work with digital technology blockade and bloc-ization. In particular, the United States is developing a three-dimensional strategy of the so-called “spot-line-area” (Kim Hyung-joo 2022, 8). It is a complex TVC (Trusted Value Chain) initiative with Spot (U.S. domestic value chain⁸) → Line (Bilateral Supply Chain Cooperation with Japan, Korea, EU, etc.) → Area (U.S.-led Multilateral Cooperative Platform such as IPEF, Quad, D-10, etc.). It also displays a strategic siege structure of combined economic security and military security in the techno-geopolitical paradigm.

Supply Chain Design and Reconstruction Strategy

Britain and the United States, which embraced the classical concept of geopolitics in the past, were able to ensure national security and maintain hegemony by continuously monitoring the emergence of forces dominating Eurasia’s “heartland” (Flint, 2007, 44-45). However, the expansion of digital space after the 4th Industrial Revolution required a new technological strategic perspective that combines physical territory and cyberspace. The U.S. and China are exerting geopolitical and geo-economic influence through information technology based on innovative communication and networks. The Trump administration has acted on blocking Chinese next-generation telecommunications giants such as Huawei and ZTE from accessing the U.S. and global markets and has justified joint efforts, including its alliances. Recognizing this change, China has responded by seeking a breakthrough with its Belt and Road Initiative in the telecommunications sector. The Western-led “clean network” and China’s “red supply network” against it can be seen as showing the dynamics of the U.S.-China blockade and anti-lockdown taking place not only in geographic territories but also in digital space.

In particular, accelerating efforts of bloc-ization in which only a group of countries in a trustworthy partnership share and control technologies due to security considerations, have excluded countries without essential technologies or equipment from the global solidarity of technology. During the period of globalization in the past 30 years, the global supply chain focused on optimizing production and maximizing efficiency. With the intensified U.S.-China strategic rivalry and limited global circulation of resources during the pandemic, the competition to restructure supply chains has emerged as a key topic in terms of economic security and national security (Yoo Hyun-jung 2021, 3). At the same time, the U.S. and China are striving to secure alternative supply chains in core technology fields to mitigate the enormous risks that may arise in case it is excluded from a supply chain.

Such supply chain design and reorganization strategies give countries the advantage to lead efforts in setting global rules and norms, allowing the projection of national strategic interests in the process of establishing new regulations and also selectively adjusting groups for participation and exclusion. At the same time, some costs may be passed on to participating countries based on strong bargaining power. Examples include the formation of plurilateral economic cooperation framework such as IPEF and Fab 4 proposals following U.S. attempts to decouple from China, and also China’s red supply chain and the “Belt and Road Initiative.”⁹ However, supply chain design and reorganization strategies can only be attempted by countries with interests throughout the entire supply chain that can afford the enormous cost and time required by the restructuring process. Only a few countries or regional cooperative coalitions can opt to employ such strategies and coerce participating countries. Therefore, it is not an appropriate strategy for small open economies, countries with high external dependence, and countries specializing in an industrial process, which account for the majority of the international community.

Super-Gap Strategy in Core Technology Areas

As a participant, not a designer of the core technology supply chain, one of the measures that actors can take to avoid exclusion from the supply chain is by securing something called “super-gap” technology.¹⁰ For example, domestic companies in the semiconductor industry are representative of this group. In the aftermath of the U.S.-Japan semiconductor agreement in the 1980s and 1990s, domestic companies entered the market during the hiatus of global companies. Subsequently, via a super-gap strategy they were able to solidify their position in the semiconductor market where there were second and third competitors. However, while the existing super-gap strategy was a survival strategy at the corporate level, the super-gap strategy in the technology security era is rather a means for security at the national level to prevent exclusion from the main global supply chain. In other words, by securing overwhelming superiority over competitors, a country solidifies its status as a necessary actor in the global supply chain, exempt from retaliation.

A technological super-gap strategy is an option that countries with productive power beyond their market size can achieve through intensive investment based on strategic judgment and speed, even without vast markets, resources, or core source technologies. In particular, small open economies can most benefit from this strategy under a global supply chain order with an advanced international division of labor based on efficiency. However, since the strategy focuses on maintaining a preemptive effect in the rapidly changing world of technology, efforts to create continuous technological innovation and efficiency are necessary. At the same time, it is also an approach that is very sensitive to geopolitical uncertainties as well as changes in the international order. In addition, the restructuring process accompanies disadvantages as it inevitably involves significant effort and cost to transfer the production base established in the existing supply chain.

Niche Strategy Based on Indispensable Technology

On the other hand, a niche strategy aims to secure unrivaled, indispensable technology and thus prevent exclusion from the supply chain. Rather than securing relative advantage over many competitors in the large market, such as the super-gap strategy, it is an approach to secure unique technology in essential niche areas. Countries that have secured irreplaceable technology in niche sectors in the techno-geopolitical structure will be difficult to exclude. Even if a country does not dominate the entire supply chain, securing a vital chokepoint can reduce geopolitical risks and make one’s position more advantageous.

However, such a strategy can also be used as a threat to countries relying on technology. The approach the U.S. is currently taking in response to China’s technology hegemony challenge is the suspension of supply of such indispensable niche technologies. For example, European and Japanese companies that produce exposure equipment and components needed to produce ultra-fine process semiconductors are prohibited from exporting to China. An example related to Korea is the Abe Cabinet’s decision to regulate the export of materials and equipment essential for semiconductor production to Korea in 2019.

The strengths of niche strategies are more evident in the concept of “strategic imperatives” recently mentioned by the Japanese think tank Peace & Happiness Through Prosperity (PHP) General Research Institute (White Paper 2020, 14). This is because the strategy to maintain Japan’s presence with technologies only provided by Japan amid growing uncertainties in the international economic order includes the idea of increasing diplomatic and security bargaining power through such technologies. That is, the strategy utilizes “asymmetry” of such strategic assets to secure an advantageous position in a cooperative relationship even within the interdependence structure of the supply chain.¹¹

On the other hand, such niche strategies presuppose the possession of unique source technology and basic science knowledge which is not the same as simple comparative advantage. It is difficult for countries to assume such a position in a short period of time and acquisition and imitation of such technology is impossible because they are under the strongest protection. As a result, only countries with a long standing tradition of basic science and technology monopolize each field. In other words, countries should strive to transform short-term resource mobilization or strategic investment into long-term support for nurturing research, fostering education and human resources, and social and cultural system innovation. That is, apart from the rapidly changing challenges, it can be said that niche strategy is an area that must set the macro direction of a nation’s vision, and be approached in terms of long-term goals. In the next chapter, as a representative example of the above-mentioned operating logic, we will analyze the semiconductor supply chain restructuring issue and the significance of the Fab 4 proposal.

Current Status and Governance Structure of the Global Semiconductor Market

As of 2020, the global semiconductor market is worth \$473.5 billion and is expected to grow to \$635.3 billion by 2025. According to OMDIA, the global semiconductor market size (2021) increased by 17.3% from the previous year to \$525.5 billion (approximately KRW 664 trillion). It is reported that an average annual growth rate of 6.1% is expected between 2020 and 2025 (Ministry of Science and ICT 2022, 70). In particular, demand for next-generation AI semiconductors is expected to expand as essential hardware devices, such as artificial intelligence autonomous vehicles, metaverse, 5G/6G, cloud, and security for realizing major functions are incorporated into digital society. McKinsey (2018) recently predicted that 50% of sales of semiconductor companies soon will be derived from artificial intelligence semiconductors.

Despite ideological and systemic differences, each country has formed an interdependent semiconductor supply chain amid the long-standing free trade order since the post-Cold War. The supply chain consists of semiconductor production design and fabrication, assembly, and outsourced semiconductor assembly and test (OSAT), and regional and national bases dedicated to each process are established, respectively. In other words, semiconductors have formed a clear global supply system for the specialization and decentralization of production processes. With a market size of \$553 billion as of 2021, semiconductors are the world’s fourth-largest trade item after crude oil, refined oil, and automobiles, with a growth rate of 25.6 percent. In particular, the supply chain is in charge of different steps based on a highly efficient division of labor and close interdependence. Furthermore, it forms an industrial structure that makes self-sufficiency almost impossible for certain regions and countries. Since WTO’s Information Technology Agreement (1997) came into effect, semiconductor-related products, materials, and equipment have been subject to the lowest tariff rates in world trade.

However, the recent trend of de-globalization triggered by U.S.-China strategic competition and the growth of the semiconductor industry is accelerating the dismantling of existing global supply chains based on efficiency. This is because the strengthening of trade barriers and the emerging trend of technology protectionism have the greatest impact on the global division of labor in the high-tech semiconductor industry. In particular, after the COVID-19 pandemic and semiconductor shortages, major countries, including the U.S. and China, are recognizing the inherent economic and vital importance of the semiconductor industry and seeking ways to establish an alternative supply chain based on stability rather than global efficiency.

In particular, competition for semiconductor hegemony is a key issue for both the U.S.and China thereby facilitating global supply chain reorganization and alliance and cooperation networks. Major advanced defense systems and platforms are also based on semiconductors. Also in countries highly dependent on the ICT industry, securing the integrity of the semiconductor value chain from design to manufacture and distribution has emerged as a key national security problem (Shivakumar and Wessner 2022). Above all, the U.S.-China conflict and cross-strait issues have brought to surface the vulnerability of the U.S. semiconductor supply and demand structure in terms of geopolitics. Furthermore, the U.S. has recognized that the overwhelming dependence on Taiwan’s TSMC for production creates a new geopolitical risk. Consequently, it has come to reassess the need to reorganize the semiconductor supply chain.

As such, the pressure the U.S. has put on China has developed into a path of trade sanctions → technical sanctions → high-tech industrial ecosystem sanctions. However, in this process, the United States rather confirmed the possibility of supply chain disruptions due to high external dependence on semiconductors and geopolitical uncertainties (Yoo Hyun-jung 2021, 12). As of 2020, the nation’s comprehensive production capacity fell to 12%. In the case of ultra-precision semiconductors with less than 10 nanometers applied to the production of advanced weapons, 92% of imports are dependent on Taiwan’s TSMC, and 8% on imports by Samsung Korea. In addition, the U.S. Department of Defense has been operating the Trusted Foundry Program since 2004. However, through this program, the annual procurement rate by the U.S. Department of Defense constitutes only 2% of the total purchase of semiconductors. This problem became more visible due to a surge in demand for semiconductors to prepare for the COVID-19 pandemic and uncertainty. This is because the demand for IT devices necessary for non-face-to-face services soared and companies preemptively secured semiconductor supplies to ease uncertainties caused by U.S.-China trade conflict (U.S. Department of State 2022).

However, one of the more important factors is that the reorganization of the supply chain is acting as a means to check, contain, and undermine China’s increasing dominance in the semiconductor industry. The U.S. has an IP license for semiconductor design and source technology and holds an exclusive position in research and development, thereby attempting to block China’s access to advanced semiconductor production technology. In this manner, the U.S. is attempting to restrict the fostering of future high-tech industries that the Chinese government is actively pursuing. These include next-generation AI semiconductors, smart automation systems, and electric vehicles (EVs). Currently, China relies on the U.S., Japan, and Europe for design software, manufacturing equipment, and materials needed to manufacture advanced semiconductors, and the U.S. has recognized the need to reorganize its semiconductor supply chain to exclude China. In this context, the Biden administration declared its willingness to reorganize its semiconductor supply chain under security considerations even at the expense of significant costs.

The Fab 4 Proposal and U.S. Supply Chain Reorganization and Design Strategy

The global semiconductor market based on the size of corporate added value is led by the U.S. (39%), followed by Korea (16%), Japan (14%), and Taiwan (12%). However, such indicators based on corporate added value have limitations that they do not fully explain the stable supply environment for semiconductor demand in the country concerned. In addition, it does not properly show the level of technology in each field and external dependence, such as securing products through overseas consignment by companies in the relevant country at the process stage. For example, the U.S. and China account for 25% and 24% of the global semiconductor consumption market respectively, but they are unable to meet such demand. On the other hand, Korea and Taiwan account for only 1% of the consumer market but are supplying 10% to 18% of the semiconductor chips. Currently, China is also a large semiconductor consumer, but its self-sufficiency rate remains at 15%.

Specifically, the U.S., the world’s number one semiconductor value-added production and consumption market, shows high external dependence in almost all areas except for the medium difficulty of 10-22 nanometers. China, the world’s second-largest semiconductor consumption market, also imports all high-tech system semiconductors with less than 10 nanometers from abroad, and 10-22 nanometers are also highly dependent on the outside world. On the other hand, Korea and Taiwan have manufacturing capabilities in all sectors and are major actors that supply more than their domestic demand.

Currently, the U.S. says it cannot allow China to secure global semiconductor design and manufacturing capabilities at the same time. The strategic goal of the U.S. is to prevent China from producing low-tech, low-value-added parts or exerting influence in the semiconductor supply chain (Kim Young-woo 2021a, 224). In particular, Samsung and TSMC, which produce most of the memory and system semiconductors, are directly or indirectly exposed to threats from China, making it inevitable to build semiconductor production facilities in the United States for reasons of national security. If Fab 4 is reorganized into an alternative semiconductor supply chain consisting of Korea, the United States, Japan, and Taiwan, the U.S. will be able to successfully exclude China by combining its strengths in design, manufacturing, and equipment, as well as memory (Korea), foundry and post-process (Taiwan).

In particular, in this process, a transition flow from the existing GVC through Fab 4 to the security-based TVC is observed. The U.S. recognizes limitations in establishing domestic supply chains due to the high interdependence of the semiconductor industry. In response, it is seeking to complete a “Trusted Value Chain” excluding China by expanding bilateral and multilateral consultative bodies with allies and like-minded countries. The Fab 4 Alliance can be said to be a visualized form of this concept. The U.S. has vowed to retaliate against trade and block the leakage of high-tech technologies as a means of decoupling from China and is also calling for Fab 4 countries and Europe to join.

At the same time, the Biden administration began employing sanctions on technology related to China’s advanced semiconductor ecosystem such as AI and 5G. Moreover, the scope of application has been expanded to individuals, universities, research institutes, and organizations under the Ministry of Public Security. At the same time, it is attempting to ban the export of equipment and parts containing U.S. technology to China, block participation in the U.S. M&A market, and block the use of capital markets. However, items that do not have sufficient technological superiority in the U.S. or are still weak in manufacturing capacity leave room for sanctions, which leads to the country-oriented reorganization process. In addition, as described above, the U.S. is attempting to check China through multilateral export control based on cooperation with allies on the so-called “chokepoint technology” of the semiconductor process. Since the Netherlands, Germany, Japan, Korea, and Taiwan each have advanced semiconductor manufacturing equipment, chemicals, and production plants, such proficiencies are used as leverage to strengthen Chinese containment through multilateral export control.

Internally, the Biden administration passed the “CHIPS and Science Act of 2022” to revive its semiconductor industry and raised \$54.2 billion in funds on supporting only the semiconductor industry. The bill includes a \$10 billion federal grant and a maximum 40% tax credit to encourage the establishment of semiconductor plants in the United States. Tax incentives were not only available to U.S. companies such as Intel but eligibility was also extended to non-U.S. companies such as Samsung Electronics and SK Hynix. However, by the automatic application of the ‘Guardrails Provision” (that restricts investment of beneficiary companies from support programs in countries of concern, including China, for a certain time) (Frackler et al. 2022) when receiving the subsidies, Korea is restricted from investing in previously established production bases in China. This situation will inevitably become a great burden for Korea (The White House, 2022). In addition, by applying the “Buy American” administrative order that strengthens the purchase obligation of domestic products, an attempt was made to establish the foundation for the endogenous ecosystem of semiconductors (U.S. Department of State, 2022). Restrictions on foreign capital and acquisitions and mergers of high-tech semiconductors in the United States, strengthening export control systems, strict management of research information and intellectual property, and technology protection are also being promoted (Baek et al. 2022, 14).

Taken together, the Biden administration is determined to push ahead with a U.S.-centered semiconductor supply chain reorganization under security considerations, even at the expense of huge costs. The U.S. says it cannot allow China to secure global semiconductor design and manufacturing capabilities at the same time, and its strategic goal is to maintain the production of low-tech, low-value-added parts. In addition, core semiconductor producers such as Samsung and TSMC, which produce most of the memory and system semiconductors, are directly or indirectly exposed to threats from China. Thus, for nationals security reasons, South Korea and Taiwan have opted to construct semiconductor production facilities in the U.S. However, the U.S. has reserved items that do not have sufficient technological superiority or are still weak in manufacturing capacity from sanctions.

China’s Strategy for Securing an Alternative Supply Chain

Meanwhile, China is attempting to ease its dependence on existing supply chains and make independent efforts to overcome the U.S. containment strategy. To this end, the government is pursuing a “dual circulation” strategy to reduce dependence on external markets and reorganize the domestic-oriented economic structure. In particular, China is focusing on expanding the domestic market for high-tech industries through new infrastructure investment and internalizing key supply chains such as core materials, parts, and equipment. It aims to promote the development of high-tech industries in China, including semiconductors. To this end, a national semiconductor fund was created to focus on manufacturing and design in the first phase and to reinforce the localization of the materials, parts, and equipment, which was vulnerable in the first phase of investment, in the second phase (Kim Young-woo 2021b). To expand state subsidies and secure inherent high-tech capabilities through M&A, China’s memory-specialized semiconductor company (IDM) Yangtze Memory Technology (YMTC) and China’s largest foundry company SMIC have invested a large amount in expanding production capabilities. The Chinese government has committed to strengthening its intrinsic research capabilities for semiconductor independence. In fact, since 2021, it has established and operated semiconductor graduate schools in more than 20 institutions, including Beijing University, Nanjing Semiconductor University, China Science and Technology University, and Tsinghua University.

From a security perspective, China has continuously emphasized strategic science and technology capabilities at the national level. Specifically, it is focusing on self-reliance, commercialization, talent development, and international cooperation. Earlier, China set science, industry, and process technology challenges as its main goal and established and supported industrial, academic, and research platforms for technology commercialization of strategic industries.

On the other hand, in terms of protection, technology protection was promoted through the revision of the National Science and Technology Confidential Act, export control, and the revision of the ‘Foreign Investment Negative List’ and the ‘Free Trade Test Zone Negative List.’ And, at a solidarity level, China is strengthening scientific and technological cooperation centering on countries along the Belt and Road Line and BRICS. At the same time, it is promoting international cooperation through the revision of the “Science and Technology Progress Act.” China is particularly strengthening its economic influence in Asia and the Pacific through the the Regional Comprehensive Economic Partnership (RCEP). RCEP is the world’s largest free trade agreement involving a total of 15 countries (Brunei, Cambodia, Indonesia, Laos, Myanmar, Malaysia, the Philippines, Singapore, Vietnam, and Thailand). Such efforts by China show an attempt to form a three-dimensional Chinese-style domestic and foreign counterpart in response to the U.S. “spot-line-area” strategy.

China is also continuing its efforts to strengthen intrinsic technical capabilities. China has set a key goal of solving industrial, process, and basic science challenges for self-reliance of the most vulnerable source technology and continues to invest heavily in existing R&D projects. Recently, the China Science and Technology Association and eight big-tech Chinese companies drew up detailed plans in June 2022. The purpose was to conduct frontier research on source science, process technology, and industrial technology and to become self-reliant. The Chinese Academy of Sciences announced that it plans to push ahead with areas where U.S. sanctions are expected to be concentrated over the next decade.

At the same time, China is warning of pinpoint sanctions and reverse retaliation against the “weak link” of the semiconductor alternative supply chain envisioned by the U.S. In the past, in the event of THAAD deployment and the Diaoyudao-Senkaku archipelago, it has attempted to retaliate through restrictions on the supply of rare earth metals. On the other hand, China also used a tactic to target gaps in cooperation between Western countries. In the past, China had actively engaged in economic security diplomacy based on its vast market and strong purchasing power since U.S.-China strategic competition began. For example, by deciding to purchase Airbus in Europe rather than Boeing in the U.S., it dealt a direct economic blow to the United States and was used as a conciliatory tool for the EU and France, aiming to ease the economic bloc in the West (Baek et al., 2022-41-42). In addition, China is responding to U.S. siege with other tactics. These include aggressive vaccine diplomacy in developing countries, signing a treaty for security cooperation with the Solomon Islands, promoting multilateral security agreements with South Pacific islands, and strengthening the influence of the Shanghai Cooperation Organization (SCO).

In addition, China selected the Chinese version of the trade blacklist to respond to its sanctions by preparing an unreliable list of companies (September 19, 2020). It also announced the Anti-Foreign Sanctions Act (June 2021), which includes various retaliatory measures for activities sanctioning China as a law against unfair sanctions by foreign governments. Additionally, there are two methods China can employ for sanctions. The first is financial retaliation (denomination of the yuan, sale of U.S. government bonds), and the second is export control. China currently has a system that can retaliate against third-country governments and companies that participate in the U.S. sanctions against China at any time through its own ‘Export Control Law’ (December 2020), ‘Unreliable Substance List’ (September 2020), ‘Laws to Deter the Unfair Extraterritorial Application of Foreign Laws’ (January 2021), and ‘Anti-Foreign Sanctions Law’ (June 2021).

Taiwan’s Technological Super-Gap Strategy

Taiwan has many of the world’s most renowned companies in each semiconductor process sector and relies on semiconductors for an absolute proportion of its national economy. It has TSMC (the world’s No. 1 foundry), MediaTek (Asia’s No.1 fabless), and ASE (the world’s No. 1 post-process) dominating the global semiconductor supply chain. In addition, Taiwan’s proportion of semiconductor exports to total exports in 2021 is 34.8%. Its dependence on exports, which is the proportion of exports to GDP, is about 56%. (In Korea, the figures are 20% and 35.8%, respectively.)

On the other hand, such dependence on semiconductors also acts as a vulnerability to external factors of geopolitical and natural disasters, including China’s threat of invasion. This is also why Taiwan is trying to form a close investment and cooperative relationship with the United States through the best technology and market share in each field of the semiconductor process. Currently, major customers of Taiwanese semiconductor companies are big tech and fabless companies in the U.S. such as Apple, NVIDIA, and AMD. The two countries are closely discussing detailed technology agreements through TTIC. In the case of TSMC, the North American market accounts for 67% of the regional sales structure, while China accounts for only 6% (1Q21, 2022).

In particular, Taiwan’s perception is that the overwhelming dominance of semiconductor technology and productivity guarantees national security. TSMC, which recently decided to make a large-scale investment in the U.S., recognized the necessity of maintaining a production base with an advantage in semiconductor technology in Taiwan under the so-called “silicon shield” (Vassallo, 2021). Taiwan accounts for 90% of the world’s high-end semiconductor supply and 50% total, and when faced with security threats, the U.S. will have no choice but to intervene in Taiwan’s security. Under this premise, Taiwan is focusing on fostering and securing high-quality talent in foundry and post-processing fields with overwhelming advantages. In addition, it is trying to reduce its dependence on imports of relatively weak equipment, materials, and software (Yang Ji-won, 2022).

According to the “Industrial Innovation Ordinance” released in January 2023, the Taiwanese government stated that it would provide the highest level of R&D and equipment investment credit to companies that meet certain conditions (產業創新條例, 2018). The Taiwan Executive stressed that “Taiwan has the world's most complete upstream, midstream and downstream semiconductor industry chain” and that it is eligible for support if it meets the requirements of “companies that carry out technological innovation and occupy a key position in the international supply chain.” This also means that the competitiveness of Taiwanese semiconductor companies should secure an advantage at the global level, but a stable supply chain that can support high yields and productivity should be secured. In other words, it is an attempt to strengthen its dominance over accessibility to supply chains by leveraging the technology super-gap.

Japan’s Niche Strategy to Revive the Semiconductor Industry

In the case of Japan, in June 2021, the Ministry of Economy, Trade and Industry announced a “semiconductor strategy” to strengthen semiconductor competitiveness and stabilize supply chains as part of economic security and growth strategies. The strategy consists of establishing an advanced semiconductor mass production system, regenerating the domestic semiconductor manufacturing base, promoting international strategies from the perspective of economic security, strengthening the design and development of next-generation advanced semiconductors, and green innovation of semiconductor technology. It is noteworthy that the Japanese government has established a strategy by attracting foreign state-of-the-art foundries and then combining it with the strengths of Japan’s materials and manufacturing equipment sector (Kim Kyu-pan 2021, 2). To this end, the Suga Cabinet announced last year that most of its aging semiconductor production facilities would be modernized and newly expanded and that it would cooperate with key allies such as the U.S., Taiwan, and Europe to revive the semiconductor industry and secure stable supply chains.

The Ministry of Economy, Trade and Industry (METI) of Japan has prepared a three-stage promotion strategy to revive the Japanese semiconductor industry. The first is to strengthen the semiconductor supply chain, the second is to “refine the semiconductor process and implement a 3D production system,” and the third is composed of the “implementation of photoelectric fusion technology.” To this end, the Japanese government is approaching the problem of the absence of a foundry, the biggest weakness of its semiconductor industry, by attracting foreign high-tech foundries and then combining them with the strengths of Japan's materials and manufacturing devices. In fact, unlike the chip production sector, which has lost competitiveness in the Japanese semiconductor market, the manufacturing equipment sector is driving growth. According to the Japan Semiconductor Equipment Association of Japan (SEAJ), Japan's semiconductor equipment market is expected to grow rapidly to 4.97 trillion yen in 2024, up 20% from 2022 due to a full-fledged recovery in memory investment and multiple large-scale logic investments.

The increasing demand for innovative high-performance semiconductors such as advanced logic semiconductors and three-dimensional Nand Flash is also a positive factor for the Japanese semiconductor equipment industry. This can be found in the “essential imperatives” of Japanese semiconductor manufacturing equipment companies. In the case of Tokyo Electron (TEL), the fourth-largest semiconductor manufacturing and equipment company in the world, its overall market share is about 13.4%. However, if you look at track facilities essential for semiconductor manufacturing facilities alone, they account for a whopping 87%. In addition, Shinetsu and Sumco occupy more than half of the silicon wafer equipment sector. Furthermore, Canon, Kioxia, and Dai Nippon Printing (DNP) are jointly participating in the development of nanoimprint exposure (NIL), next-generation micro-process equipment. If NIL is commercialized, Japanese companies will occupy the exclusive position currently enjoyed by the Dutch ultra-ultraviolet equipment (EUV) company ASML.

Recently, Japan succeeded in attracting a TSMC plant to Kumamoto with leading companies and talent pools in the fields of semiconductor materials, manufacturing equipment, and memory design. In October 2021, TSMC announced plans to build a 22-28 nano-class semiconductor plant in Kumamoto, Japan, which will be mass-produced from the end of 2024 through the recruitment of local personnel and partnerships with major companies. TSMC has already started joint projects in semiconductor-related basic research with Tokyo University and major Japanese companies in 2019 and has been developing next-generation semiconductor ideas and prototypes behind closed doors (Ota Yasuhiko 2022, 63-65).

Amid such close cooperation between Japan and Taiwan, U.S. Vice President Harris, who visited Japan on September 28, 2022, mentioned specific cooperation measures to strengthen U.S.-Japan semiconductor cooperation. She met with officials from major Japanese semiconductor equipment companies, including Tokyo Electron, Hitachi, Fujitsu, and Nikon, and announced ambitious plans to produce 2-nano ultra-fine process semiconductor chips by 2024. With such close cooperation with the U.S. and Taiwan, Japan is actively using the U.S. Fab 4 initiative as an opportunity to revive its semiconductor manufacturing capabilities and gain geopolitical advantage in the semiconductor supply chain in the future.

Korea’s Strategic Options

Korea is not a designer of the entire supply chain like the United States and China, and attempts to excel in all areas are also undesirable. From the perspective of technology geopolitics, which requires a combination of technology, economic value, and national security, the best scenario is to maintain sustainable technological competitiveness, secure markets, and strengthen security by further solidifying alliances. On the contrary, the least desirable scenario is a situation in which all three values are threatened at the same time as they are excluded from the new semiconductor supply chain. Given this goal, in securing the security of the semiconductor supply chain, we should avoid the discourse of over-security and seek sophisticated strategies that match our reality in the reorganization process. Korean companies participating in the U.S. Fab 4 initiative will be able to improve their business conditions based on infrastructure in the high-tech sector linked to securing customers in the U.S., a giant semiconductor market. In particular, it can slow down the pursuit of Chinese companies due to the blockade of technology against China, which is narrowing the gap with Korea. In addition, accessibility and technology cooperation in advanced semiconductor design and equipment can be expected in the United States, which has original technology in fabless and material fields with less than 1% of the market share. Taiwan’s TSMC, the world’s number one player, occupies 52.1% of the semiconductor foundry market based on modern design technology, and Korean companies have to attract a large number of these customers.

On the other hand, in terms of threats, resolving China’s backlash in the short term remains a dilemma. Korea's semiconductor production base is in China and accounts for 60% of exports (including Hong Kong). Regarding the reorganization of the semiconductor supply chain with China’s exclusion, which is symbolized by Chip 4, the Chinese government recognizes it as a critical issue that can deal a decisive blow to China’s semiconductor growth, unlike the previous sanctions issue. While being extremely wary of Korea’s participation in Fab 4 and expressing multiple concerns, China also proposed whether Korea would be ousted from Fab 4 or if China would be included in “Fab 5.” China is also trying to block moves to unite with the U.S., noting that Korea’s semiconductor industry could be discriminated against after joining the Fab 4, just as Korean electric vehicles were excluded from subsidies under the U.S. Congress’ Inflation Reduction Act (IRA) after a massive investment commitment.

The problem is the possibility that China will use its semiconductor raw material supply chain as leverage to pressure Western companies that participate in its exclusive supply chain with export regulations. China, the world’s largest producer of rare earth metals, is a supplier of essential materials for semiconductors such as lithium, nickel, cobalt, manganese, and magnesium. Hundreds of element species account for more than 75% of Korea’s imports from China. It may be argued that only Korea is pressured among the Fab 4 participating countries because it is recognized as the weakest link compared to Taiwan and Japan. Taiwan and Japan, which received offers to participate in the Fab 4 along with Korea, have relatively lower dependence (less than 10% and 30% respectively) on China in the semiconductor market (Yoon Junghyun 2023, 202-203).

However, Korea is bound to be more sensitive to the U.S. government’s export regulations and investment restrictions, even if it expects such threats from China. If Korea is excluded from the U.S.-led supply chain and fails to develop equipment or original technology software, Korea’s semiconductor production will inevitably be paralyzed. This could mean a departure from the semiconductor industry supply chain, which must be positioned as an overwhelming advantage or indispensable technology. This can be seen as the worst security risk situation from the perspective of technological geopolitics.

Currently, Korea has been invited to the Fab 4 Alliance at the request of the U.S. to reorganize its supply chain. However, it is difficult to guarantee how long the U.S. will need Korea for its strategy. For example, as the U.S. Congress passed a bill to foster the semiconductor industry, Intel announced its re-entry into the foundry and is trying to revive itself as a powerhouse in semiconductor manufacturing. Although there are currently no explicit discrimination provisions, it is difficult to rule out the possibility of using non-financial support systems such as banning M&A between overseas semiconductor companies. Therefore, it is necessary to prevent discrimination from U.S. companies after participation in Fab 4 and secure solid technical skills for negotiating power with the U.S. as a key actor necessary for the supply chain.

Therefore, it is foremost necessary to solidify the “super-gap strategy” of comparative advantage. This is not a simple technology super-gap, but it can be said that actual market dominance and irreplaceability are the super-gap of determined production capacity and stable yield. At the same time, Korea should emphasize that maintaining its current supply chain dominance based on its overwhelming competitiveness is consistent with the stable supply and demand of semiconductors through the U.S. and Fab 4. Investment in the system semiconductor industry, which currently has a low market share, is also important, but this is also why the super-gap strategy should be maintained in the memory semiconductor sector, especially in ultra-fine processes. Furthermore, in the new semiconductor supply chain, such a super-gap strategy should be allowed to function as a “semiconductor shield” for Korean economic and national security in the future. The establishment of a “Korean semiconductor shield” will be realized when member states become aware that external threats, such as North Korea’s military provocations and supply chain disruptions outside Fab 4, can pose serious challenges not only to the Korean semiconductor industry but also to the Fab 4 economies. This is premised on securing Korea’s semiconductor superiority that cannot be replaced immediately.

In addition, in the case of the competitive memory semiconductor field, for the time being, efforts should be made to delay the development of China’s semiconductor industry through the exclusion of supply chains. The super-gap strategy to solidify the Korean semiconductor shield eventually means strengthening the production base in Korea. In other words, investment in the U.S. is inevitable in a situation where it is necessary to respond to the U.S. Fab 4 proposal and use the Semiconductor Support Act. However, the key items mentioned above must be made on the domestic production base. This is directly related to mid- to long-term talent training strategies to strengthen the endogenous ecosystem in Korea as well as overseas bases. This should ultimately lead to strategies to support the establishment of industry-academic exchanges and joint research networks at the international level. Furthermore, Korea should strive to maintain its strategic position by persuading the United States and other supply chain participants that Korea’s overwhelming market dominance within the supply chain will help secure a stable semiconductor supply and demand structure.

Second, Fab 4 should be actively used as a protective device for shock relief from external threats. Korea has unique memory semiconductor production capabilities as well as the world’s best comprehensive semiconductor companies and ecosystems. However, it also has weaknesses such as large companies and memory-oriented ecosystems, fabless capabilities, lack of small managerial capabilities (EUV, EDA), lack of talent, and regulation. It is also especially difficult to build technology capabilities and ecosystems in a short period, and external dependence is inevitable. Therefore, alternative supply chains need to be used as a means to prepare for economic security such as responding to external threats and disturbances. Korea should seek to actively utilize Fab 4 as a precaution against issues that threaten Korea’s vulnerable sectors, such as Japan’s ban on semiconductor materials exports in 2019 and China’s retaliatory measures. Furthermore, it is necessary to seek stable supply and demand through Fab 4 in vulnerable areas where independent pursuit is difficult.

Third, strategic flexibility must be exercised in the process of reorganizing the supply chain to GVC-RVC-TVC. Currently, it is difficult to reorganize the semiconductor supply chain that the U.S. and China hope for in a short time. It is also likely to coexist in various forms depending on the existing supply chain structure, actors, target regions, technology maturity, and items. In other words, it is necessary to consider various production and investment strategies. Currently, in addition to Fab 4, there is a plan to ultimately complete the domestic value chain (DVC) in the U.S. However, considering the complexity of the semiconductor supply chain, it is an approach that emphasizes security logic. Various supply chain structures may be mixed for a certain period, such as cooperation between key partnerships, regional value chains (RVC), and low-security sensitivity items. Recently, U.S. technology sanctions against China have been approached as an effective way to narrow the field of attack with military-like or core high-tech technologies under the keynote of “small-yard high-fence.” Such an environment is currently differentiating strategically sensitive items in semiconductors (18nm (nanometers, 1 billionth of a meter) or less DRAM / 128 layers or more NAND flash / 14nm or less logic chips) and parts outside the scope of priority control. For Korea, multi-faceted consideration of production and investment strategies is required in the latter sector or in areas where sanctions are still suspended. Furthermore, there is a greater emphasis on maximizing the control vacuum and transition time in the U.S.-led supply chain reorganization process.

Fourth, it is necessary to avoid “excessive securitization discourse” and maintain a balanced perspective between the economy and security. In the case of the immediate Fab 4 participation issue, no matter how much the consultative body is mindful of checking China, Korea is not an actor that has the means to exclude China independently. There should be more focus on fostering and promoting the semiconductor industry based on technology protection against China and easing supply chain instability. That is, Korea’s goal as an alternative supply chain participant is not “exclusivity” but actually to “secure various options.” Specifically, efforts to improve the threat of technological sovereignty posed by asymmetric supply chain dependence should not be limited to simply changing the target. Rather, they should lead to the original goal of securing the balance and diversity of cooperative structures. Emphasizing a strong “semiconductor alliance” may lead to the exclusion of forces outside the Fab 4 supply chain, causing side effects that threaten security. If Fab 4 transitions into an alliance from an excessive security perspective, it will be difficult to rule out a scenario in which economic and security sanctions are imposed by external forces or a large part of the market is lost from excessive exclusivity. This is why strengthening partnerships with the U.S. through participation in the Fab 4 Alliance should aim for a “semiconductor community,” not a “semiconductor alliance.”