Korea Needs National Growth Fund, K-IRA to Strengthen Semiconductor Industry

The semiconductor industry, riding a "super cycle" boom, has become a solid pillar of the Korean economy. Last year, semiconductor exports reached $173.4 billion, accounting for 24% of total exports ($709.7 billion). The combined market capitalization of Samsung Electronics and SK hynix approached 40% of the entire KOSPI.

However, challenges and risks lurk beneath the boom. Uncertainty over U.S. President Donald Trump's semiconductor tariffs is mounting, and China's semiconductor ambitions are formidable. Geopolitical instability in the Middle East is intensifying following U.S. airstrikes on Iran. A momentary lapse in vigilance or misguided policy decisions by the Korean government and companies could leave them behind in the competition.

In an interview with Seoul Economic Daily on the 2nd, Kim Jung-hoe, Executive Vice Chairman of the Korea Semiconductor Industry Association, said, "With the arrival of the AI era, demand for advanced semiconductors such as High Bandwidth Memory (HBM) and Graphics Processing Units (GPU) is surging, while supply constraints are expected to persist through next year." He emphasized, "Now is the time for the public and private sectors to maintain vigilance and join forces in developing breakthrough technologies."

Kim stated, "As strengthening the supply chain with the United States has become the new normal, we must continue to build foundry capabilities through bilateral cooperation." He added, "To further strengthen the domestic semiconductor ecosystem, we need comprehensive support through the National Growth Fund and the Domestic Production Promotion Tax System—Korea's version of the U.S. Inflation Reduction Act (IRA)."

On the semiconductor super cycle and future outlook:

"The global semiconductor market in 2025 reached $790 billion, up 21% year-over-year. This year, we expect additional growth of about 30%, exceeding $1 trillion. The biggest driver is the explosion in AI demand. While price increases for general-purpose semiconductors like automotive chips remain limited, the market is growing rapidly around high-value AI-specialized products such as HBM and GPU. Supply shortages continue. Building a single semiconductor fab takes five to seven years or more. SK hynix's Yongin fab is expected to begin operations next year, and Micron's new Idaho fab in the U.S. is also projected to start production next year. These factors combined suggest the boom will continue through the first half of next year."

On government policy support:

"Korea leads the world in memory but is still catching up in foundry and design. Recently, foundry operations centered on Samsung Electronics are showing positive results in AI-related advanced semiconductors. Most design companies are small and medium enterprises or startups. That's why financial support is absolutely essential. We need to actively utilize the National Growth Fund for semiconductor design companies. For materials, parts, and equipment companies, we should consider reducing corporate tax burdens through the Domestic Production Promotion Tax System. We must also expand matching policies connecting design companies with demand-side companies and provide full support for them to build domestic track records before expanding into the U.S., Europe, and the Middle East."

On calls to relocate the Yongin semiconductor cluster:

"Balanced national development is a very important value. It's encouraging that many local governments are interested in the semiconductor industry. However, the capital region semiconductor cluster has been built over nearly 30 years. Infrastructure including workforce, electricity, water, and transportation is concentrated there, and the semiconductor ecosystem with materials, parts, and equipment companies is complete. We must be mindful that investment delays could negatively impact our entire industry. While global competitors like TSMC and Micron are making astronomical investments targeting the AI era, wasting time on location debates could weaken our competitiveness. A parallel strategy that leverages the capital region cluster's advantages while simultaneously fostering innovation capabilities in other regions is realistic."

On the omission of 52-hour workweek exceptions from the Semiconductor Special Act:

"It's positive that the 52-hour issue has become a public discussion. This isn't just a semiconductor issue—it applies to advanced industries including AI, robotics, autonomous vehicles, and secondary batteries. Many researchers say flexibility in working hours is needed given the nature of their work. In the U.S., R&D personnel earning high salaries are exempt from working hour regulations. While systems differ, major competing countries are moving toward allowing working hour flexibility for innovative industries."

On evaluating the Lee Jae-myung government's semiconductor strategy:

"I view it positively. I would give high marks particularly for the perspective linking AI and semiconductors. The key to AI capabilities is simultaneously fostering software like Large Language Models (LLM) and the semiconductor hardware that implements them. Creating an ecosystem where promising SMEs in the AI model field and major semiconductor companies can collaborate is the right direction. The passage of the Semiconductor Special Act is also significant. When the U.S. and EU passed their semiconductor special acts in 2023, Korea was limited to tax support under the Special Tax Treatment Control Act. The Semiconductor Special Act, finally passed after twists and turns, includes cluster support and system semiconductor development, and swift implementation is expected."

On risk factors amid the semiconductor boom:

"In the past, semiconductors accounted for about 20% of total exports, but last year it hit a record 24.4%. While high-value products like HBM drove exports, the relative weakness of other industries like steel and petrochemicals also contributed. This is clearly an opportunity, but we must not forget that seeds of crisis are hiding. If the semiconductor boom cycle collapses, warning lights could flash for exports, growth rates, employment, and facility investment. To maintain semiconductor dominance, we must continue producing innovative high-value products. We need to expand policy support and remove regulations so innovation capabilities can grow steadily regardless of market conditions."

On strengthening the Korea-U.S. semiconductor supply chain:

"U.S. AI capabilities are world-class, but semiconductor manufacturing including memory is weak. The strategic value of strengthening the semiconductor supply chain is very high given that both countries can complement each other's weaknesses. The U.S. State Department, not just the Commerce Department, is engaging in global semiconductor cooperation. Semiconductors are becoming an economic security tool beyond trade, forming a solid foundation for Korea-U.S. cooperation. The U.S. is staking its survival on building the semiconductor supply chain regardless of party or faction. The Biden administration used subsidies; the Trump administration uses tariffs. Korean companies' increased investment in the U.S. aligns with this trend. We need to expand cooperation areas including joint investment, technology development, and supply chain risk management."

On China's semiconductor ambitions:

"China is adopting a semiconductor strategy that other countries haven't taken. It's trying to build the entire supply chain domestically—memory, foundry, materials-parts-equipment, design, and raw materials. This is completely different from the global structure where roles are divided: U.S. for design, Korea for memory manufacturing, Japan for materials-parts-equipment. China has nurtured numerous semiconductor startups through its IC Fund and created a sustainable growth structure through IPOs. It's true they're struggling due to U.S. equipment export controls and the technology gap with Korea. But we must remember that gaps can narrow rapidly when new technological paradigms emerge, as the battery case showed. China's massive investment in compound semiconductors like gallium and silicon carbide is in this context."

On Trump's tariff threats becoming the new normal:

"The Trump administration's semiconductor tariff pressure should be viewed not as a temporary threat but as a structural change in U.S. semiconductor policy. We should pay attention to the approach from recent U.S.-Taiwan trade negotiations: 'tariff exemption for 1.5 to 2.5 times the amount of semiconductor investment in the U.S.'"