Daily Management Review

A Linchpin For All Global Tech Is South Korea – Here Is Why


Some analysts are pointing out just how crucial South Korea is to global technology even as President Donald Trump threatens to renegotiate trade with Seoul and tensions with North Korea continue to rise.

South Korea took 17 percent of the global semiconductor market and 64 percent of the memory chip market, noted Soo-Kyoum Kim, program director of the semiconductor research program at research firm IDC, last week.

"[If South] Korea is hit by a missile, global key chip supply will stop immediately and all electronics production will stop too," he said.

Impacting well beyond the tech industry and taking a toll on tens of millions of lives, a major military conflict in the region would be catastrophic.

Still, the question of supply chains has been made something more than just academic by the recent ratcheting up of tension on the Korean Peninsula.

with experts saying the magnitude of the resulting earthquake indicated an explosive yield of more than 100 kilotons, North Korea claimed a successful hydrogen bomb test last week end. In comparison, the nuclear bomb dropped on Hiroshima in 1945 had a yield of an estimated 15 kiloton.

North Korean leader Kim Jong Un was "begging for war”, the U.S. Ambassador to the United Nations told a Security Council meeting.

The potential disruptions to the technology supply chain was pointed out by others.

With a 40 percent market share, and the fourth biggest producer by value added of electronics products, South Korea was the biggest producer of liquid crystal displays globally, Capital Economics noted in a note from May.

If South Korean production was badly damaged by a war there would be shortages across the world.

The disruption would last for some time — it takes around two years to build a semi-conductor factory from scratch," economists Gareth Leather and Krystal Tan said in the Capital Economics note.

"Given South Korea's key role as a producer of intermediates, especially in the electronics sector, there would not be enough spare capacity elsewhere in the global economy to compensate for the lost production. Many companies outside of South Korea would be forced to halt production," they added.
Indeed, some economists use the country's trade data as a barometer for the outlook for global trade ahead because many of South Korea's exports are at the beginning of the global supply chain.

Analysts said that a trade spat with the U.S. may not hurt South Korea's trade while a potential conflict with North Korea could severely hurt its trade.

Trump is also beating a drum on concerns about the U.S. free trade agreement with South Korea, known as Korus even while he is railing against the North's behavior.

Trump threatened to terminate Korus and called it a “horrible deal” that has "destroyed" his country during an April interview with the Washington Post. As early as this week, the Trump administration could serve notice of withdrawal from the pact, a report in The Wall Street Journal on Saturday said.

Trump may use a Korus withdrawal to appeal to his domestic political base, analysts at Citi said in a note on Monday.

But South Korea's exports to the U.S. might not significantly be impacted by withdrawing from Korus, Citi said.
(Adapted from CNBC)