[Herald Interview] ‘US election main risk for Korean chip, EV makers’

This year’s US presidential election is expected to be the biggest geopolitical risk for Korean companies already reeling from supply chain disruptions and protectionist policies amid an escalating Washing-Beijing rivalry, according to a global specialist in risk management.

“The US election could have more direct impacts on Korean businesses in several markets (compared to other risk factors),” said Andrew Gilholm, director of analysis practice for Greater China and North Asia at Control Risks, the UK-based global risk and strategic consulting firm, during an interview with The Korea Herald on Monday.

“The second Biden administration (if elected,) is still going to pursue industrial policy that protects American interest, and it would probably be intensified under the Trump administration.”

Korean chip and automotive industries, among others, are expected to face heightened uncertainty as the US and China continue to clash over control of key industrial areas such as advanced chips that have now become crucial security assets.

“Many countries, including Korea, have been too late to realize how heavy their dependence is on China, a leader in the EV market, for rare earth materials related to batteries,” said Gilholm. “They’ve tried to keep both China and the US happy. But it’s getting to the stage where it’s impossible to completely play both sides and it’ll only get more difficult.”

The US-China tensions pose a tricky dilemma for Korean companies, he added. For instance, car and battery manufacturers that meet the strict requirements for EV credits in the US are sure to lose competitiveness in other markets to China.

Trump is voicing out plans to repeal the Inflation Reduction Act when elected president, raising the possibility of wasting hundreds of millions of dollars in investments made by Korean automotive and battery companies to set up production bases in North America, but Gilholm noted that might not be the case.

“There was never any single consistent policy in the first Trump administration. We can assume a certain degree of chaos, but a lot of people around Trump are determined to make the second administration have a more consistent policy,” he said. “Some of those people would look at policies like the IRA and the Chips Act from not a very different perspective to the Biden administration.”

In terms of the Chips Act, which incentivizes global chipmakers to build semiconductor plants in the US and limits expanding production capacity, especially for advanced chips, in China, Gilholm said Trump might ask for more investments from Samsung Electronics and SK hynix.

Gilholm suggested Korean companies prepare for two scenarios -- Biden’s second term or the return of Trump. The Biden administration might start to see the limits of current industrial policies and adjust them or make them more flexible. The Trump-winning scenario, on the other hand, is likely to bring a more sudden and sharper shift, which looks more like a decoupling where companies do not have years to prepare to choose sides between the US and China.

The Korean government should strengthen ties with other middle power countries -- Western and Asian developed economies, including Japan, Australia and the Netherlands, which are trying to weigh down business sentiments in US-China relations, he added.

“I think South Korea has been quite active in diversifying its relationships, building its international profile, and becoming an important player in those discussions and networks. That’s not enough to change the direction of geopolitics, but it at least helps build some resilience.”

On the impact of the recent victory of president-elect Lai Ching-te in Taiwan, Gilholm noted it might worsen relations between Taiwan and China, but said that it will not go too far to heavily restrict the business activities of Taiwanese and Korean chipmakers in China.

“The biggest concern in terms of their China market access is US regulations, not Chinese rules, because the country’s semiconductor industry relies on global companies. China would not escalate the decoupling trend in a big way before they’re ready -- making the world dependent on China while China reduces its dependency on the world.”

Gilhom stressed that preparing for a supply chain crisis should be a permanent part of corporate monitoring, not a one-time agenda of emergency meetings at this time of geopolitical turmoil.

“We are in a world where such risk is going to come up whether that is from military and security issues, natural disasters, or geopolitical developments,” he added.