[Edaily SOYEON KIM Reporters Lee Bae-woon and Lee Soo-bin] “The key point in the Jensen Huang scandal will ultimately be that data centers were built in China and elsewhere, and cloud services were provided to Chinese companies. Given the circumstances, this is the more important issue. Ultimately, the government will mobilize extensive measures to prevent indirect exports to China and will make strong demands on South Korea as well.”
Kim Kwang-seok, Director of the Economic Research Division at the Korea Institute for Economic and Industrial Research, made these remarks on the 13th at the “U.S.-Korea Relations at an Inflection Point: Key Issues and Challenges” roundtable held at the Grand Hyatt in Yongsan-gu, Seoul, stating, “The Jensen Huang scandal is expected to bring about significant changes in the semiconductor industry ecosystem.” This roundtable was jointly hosted by the Sejong Institute, a state-funded research institute, and The Asia Group (TAG), a Washington, D.C.-based policy consulting firm, and organized by Edaily to discuss U.S.-South Korea relations following the U.S. midterm elections.
◇ Pressure on China in the Semiconductor Sector to Intensify… Pressure for Domestic Production in the U.S.
There are forecasts that the scandal surrounding Jensen Huang, CEO of NVIDIA, could lead to tighter U.S. export controls on semiconductors to China, which in turn could create new pressures for the South Korean semiconductor industry. If the U.S. regulates not only the direct export of advanced semiconductors but also Chinese companies’ use of cloud services via data centers in third countries, calls for South Korea to shift its semiconductor supply chain to the U.S. could grow louder.
Director Kim pointed out that the crux of this situation lies not merely in whether advanced artificial intelligence (AI) semiconductors are being exported to China via indirect routes, but in the provision of cloud services through overseas data centers. “Regarding Singapore-based Megaspeed’s construction of data centers in Indonesia and Malaysia, what is more significant than the indirect supply of chips themselves is the fact that these data centers provided cloud services to Chinese companies,” he explained. “The key point is that even without building data centers directly in China, facilities can be established in neighboring countries to allow Chinese companies to access the services.”
MegaSpeed, a company that purchased large quantities of NVIDIA’s cutting-edge AI chips, is under investigation by authorities amid allegations that it may have circumvented U.S. export controls on China. On the same day, the Malaysian government also announced that it is investigating whether AI chips imported by SpeedMatrix, a local subsidiary of MegaSpeed, were re-exported to a third country. However, it has not yet been confirmed whether any illegal re-exports actually took place.
Director Kim stated, “Given that this issue arose immediately after the midterm elections, it also carries political significance,” adding, “Once the Democratic-controlled Congress convenes on January 3 next year, it will actively investigate this matter and put in place measures to block indirect export routes to China for both hardware and services.” He went on to emphasize, “Policy discussions will intensify toward imposing sanctions not only on direct exports to China but also on indirect export routes,” adding, “In the process, strong demands will be made of South Korea as well.”
He also raised the possibility that the U.S.’s tightening of regulations could lead to pressure on South Korea to relocate its semiconductor supply chain. Ultimately, pressure to shift semiconductor production networks to the U.S. is expected to intensify. Director Kim said, “The U.S. is likely to employ both tariffs and non-tariff barriers to bring the semiconductor value chain back within its borders,” adding, “South Korean companies must also prepare for tighter export controls on China and pressure to restructure their supply chains.”
◇ Tariff Policy Will Remain in Place… Need to Examine Links to Chinese Components
During the discussion, there was also a consensus that U.S. tariff policies would remain largely unchanged even after the midterm elections. Given that tariff pressure targeting specific countries linked to China’s indirect exports could intensify, it was recommended that South Korean companies closely examine their reliance on Chinese components and their supply chains. Jang Sang-sik, President of the International Trade and Commerce Research Institute at the Korea International Trade Association, noted, “It will be difficult for tariffs to decrease even after the midterm elections,” adding, “Tariffs have now become a constant for companies.”
Although some within the Democratic Party are calling for tariff reductions, analysts suggest it will be difficult for such calls to translate into actual policy. However, they predicted that, given concerns over the burden of living costs, tariff measures targeting specific countries are more likely to take center stage than broad, across-the-board tariffs.
In particular, Director Jang cited China’s indirect exports as a key variable. He explained that while the share of China’s direct exports to the U.S. has decreased, products imported by the U.S. still contain a significant portion of Chinese-made parts and raw materials, leading the U.S. to view these as indirect exports. He predicted, “Mexico and Vietnam rank first and second, respectively, among countries frequently used for indirect exports, and South Korea is also in the third or fourth range,” adding, “It is highly likely that the U.S. will use tariffs against countries linked to China’s indirect exports.”
Accordingly, he advised that South Korean companies should assess the extent to which products manufactured at their domestic and overseas production facilities are linked to the Chinese supply chain. Director Jang emphasized, “Whether production takes place domestically or overseas, companies need to scrutinize even more closely the extent to which Chinese components are used in their products.”
Regarding whether the Democratic Party’s control of both the Senate and the House of Representatives in the recent U.S. midterm elections will lead to changes in the trend of South Korea-U.S. shipbuilding cooperation and investment—which had been spearheaded by the Trump administration—Professor Lee Shin-hyung of Seoul National University’s Department of Naval Architecture and Ocean Engineering drew a clear line, stating, “The framework for shipbuilding cooperation will not change.” He pointed out, “The U.S. developed the Zumwalt-class destroyer, the world’s best destroyer, but was only able to build three of them,” adding, “The reality in the U.S. is that even with world-class design and research capabilities, they are unable to actually build the vessels.”
He explained that since this issue arose during the Biden administration—a Democratic administration—shipbuilding cooperation will not be suspended simply because the political landscape has shifted. However, Professor Lee cautioned, “Even if a new Congress begins and a new administration takes office in the U.S., unilateral investments based on flawed assessments should be avoided,” and urged that “South Korea and the U.S. must build a relationship based on mutual trust.”
