Samsung Expanding US Chip Manufacturing

Lee Tae-Kyu, a senior researcher with the Korea Institute of Economic Research, said Samsung Electronics' plans to build a new chip factory in Taylor, Texas, would be the best investment for Samsung, in Seoul, Korea, on Sept. 28, 2021. (Lee Yu-Jung / Epoch Times)

To help avert the global shortage of semiconductor chips, South Korea’s Samsung Electronics Co, Ltd is considering expanding its manufacturing operations in the southwest of the United States. The leading yet unconfirmed location for this new plant, contingent on subsidies and access to electricity and water, is the city of Taylor in Williamson County, Texas. South Korean researchers are optimistic about this endeavor.

The White House met with chip companies and automakers in April, May, and finally, Sept. 23, pressing them to take the lead in solving the U.S. chip shortage. Participants included representatives from Apple, Microsoft, Micron, TSMC, Samsung, Intel, and Ampere Computing. Also in attendance were representatives from automakers General Motors, Fiat Chrysler, Ford, Daimler, and BMW.

A chip shortage within the auto industry was created after chip companies began diverting their production to computers and tablets, where demand was soaring, as the demand for autos fell during the early stages of the CCP virus pandemic. This chip shortage forced automakers to cut back production.

Location, Location, Location

Samsung announced in January this year its intent to build a new $17 billion chip factory in the United States. The company currently operates a chip foundry in Austin, Texas. However, in February of this year, the plant experienced financial losses due to a cold snap that temporarily halted operations. To prevent similar losses in the future and cope with infrastructure-related risks, Samsung decided the new plant has to be outside of Austin.

The Korean conglomerate shared its plans for a second production line in the United States last May, during a summit meeting between President Biden and South Korean President Moon Jae-in. The estimated 51.7 million-square-foot facility will be four times larger than the Austin plant and produce advanced next-generation chips. However, construction will have to wait until a suitable location is identified.

On Sept. 6, Samsung denied rumors that Taylor, Texas, would become the location of its newest chip plant, and while this location is appealing, Samsung was simultaneously considering sites in Arizona, California, New York, and even South Korea.

Although Samsung denied it, The Korean Times reported that Samsung had met with representatives of Williamson County and the Taylor City Council. According to the report, the city council authorized Mayor Brandt Rydell to execute a Tax Abatement Agreement, Development Agreement, and Development Review Services Reimbursement Agreement.

Then on Sept. 8, the Williamson County Commissioners and Taylor City Council voted unanimously to approve an incentive package for Samsung. The deal states that if Samsung agrees to build its facility in Taylor and creates 1,800 permanent jobs by January 2026, it would receive a 92.5 percent rebate in property taxes for the first 10 years, 90 percent for the second 10 years, and 85 percent for the third 10 years.

A Win-Win for Korea and the US

During a Sept. 28 interview with The Epoch Times, Lee Tae-Kyu, a senior researcher with the Korea Institute of Economic Research, said that this investment would be the best one Samsung had ever made. He said the tax incentives proposed by the city of Taylor will put Samsung in a favorable position to negotiate for investment.

Lee believes Samsung is linked to the U.S. semiconductor supply crisis and that the U.S. government will be uncomfortable if its industries continue to get hit by the supply shortage. The semiconductor industry is becoming more important now that worldwide demand readily exceeds the supply.

“In the 1980s and 90s, the U.S. government didn’t need to adjust its industrial policies. But now it’s the opposite, as the U.S. government is investing in the semiconductor industry across the board and also offering tax incentives to the battery industry,” said Lee.

What this suggests, says Lee, is that countries have begun to share the same interests as the corporations. A country’s national interest is codependent on the government’s control of its industrial policies to support the economic success of its corporations. Therefore, Samsung’s investment decision should protect both national and corporate interests.

He believes that South Korea should continue to work with the United States for a win-win cooperation. He said, “The reason why the U.S. economy will be dominant for a good part of the future is that through continuous innovation, companies are growing, they are young and dynamic. So, I think Korea should continue to invest in the U.S. as well.”

In the global chip manufacturing industry, at the end of June, Samsung was second to TSMC (Taiwan), which controlled 52.9 percent of the market share while Samsung controlled 17.3 percent, according to analysis provider Trend Force.

China Is Unlikely to Interfere

Although the potential deal between Samsung and Texas offers a mutually beneficial solution to a growing problem, speculations abound as to whether this might prompt China to impose pressure on either the United States, South Korea, or both.

China is undoubtedly wary of this deal since its involvement with the COVID-19 pandemic and deteriorating trade war with the United States are forcing multinationals to restructure. Members of Fortune 500 companies, including Samsung, have begun shifting their production and supply chains from China to other regions.

Although China’s retaliation is possible, Lee thinks people are overly worried about possible steps the Chinese Communist Party (CCP) might take. While the CCP previously imposed sanctions on the South Korean firm Lotte for its involvement with the THAAD missile system, circumstances now are different.

For example, if the CCP imposes sanctions on the importation of South Korean semiconductor chips, it would be dissolving one of its essential supply chains. This, according to Lee, “Is China’s most fatal weakness, and (without South Korean chips) China will not be able to achieve the level of nationalization of semiconductors by 2023.”

The Korean researcher believes China has a long way to go before its chips can compete with those of South Korea. In particular, he says, “the semiconductors needed in the fourth industrial era are extremely small, highly integrated, and very sophisticated. Without foreign chip imports or companies entering China to produce them, China would be unable to fulfill its demands.” Any attack by the CCP against foreign chip makers would boomerang on itself.

Preserving South Korea’s Loyalty to the US

On Aug. 13, the South Korean president announced a decision he made on behalf of the country that he realized some might view as controversial. He granted Lee Jae-Yong, the de facto controller of Samsung Group and vice chairman of Samsung Electronics, an early release from prison.

Lee was arrested in February of 2017 and served 207 days on a 2 and-a-half-year sentence for his alleged role in a political and corporate scandal involving Moon’s predecessor, Park Geun-Hye.

Following Lee’s arrest, various groups petitioned the South Korean government to parole him from prison. They argued he was uniquely qualified to build South Korea’s global supply chain for semiconductors. While his imprisonment did not affect Samsung’s daily operations, sources inside the company told Reuters that Lee was instrumental in making decisions on major investments, mergers, and acquisitions. This was particularly true since the world was facing a chip shortage and competitors like TSMC and Intel were rushing to make massive investments.

Moon’s decision to release Lee may have been influenced in part by his announcement in May that South Korea would invest more than $437.4 billion in chip and other semiconductor companies in the next 10 years. Leading the initiative would be Samsung, SK hynix, and a national semiconductor team represented by 153 companies. Moon said Samsung Electronics planned to expand its memory and system semiconductor production lines in Pyeongtaek and Hwaseong, and SK hynix planned to build a new large-scale production base in Yongin.

Shi Shan, a U.S.-based China expert,  suggested Lee was released from prison for a different reason—that Moon’s decision was motivated by the U.S. government’s dissatisfaction with his adopting pro-communist policies. Specifically, the “three no’s” Moon promised to the CCP: no additional deployment of the THAAD missile defense system, no joining the U.S. missile defense system, and no military alliance with the United States and Japan.

But in the last two years, the international situation has changed dramatically, especially the restructuring of the global supply chain led by the United States—South Korea may be left out of this chain.

Moon understands that South Korea’s development depends on cooperation with the United States. Once excluded from the U.S. supply chain, South Korea’s economy will collapse in the next 20 years, said Shi. So in May this year, Moon rushed to the United States to meet with Biden to “return to the team”—South Korea wants to return to the United States’ high-end supply chain team.

Jinbaek Lee and Reuters contributed to this report.