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In response to the United States’ new tariff regime, South Korea has unveiled an ambitious $25 billion plan to assist industries facing the brunt of the trade war, including the semiconductor sector, which is one of the hardest hit.
The announcement, made by the Ministry of Economy and Finance, is part of the country’s broader effort to safeguard key industries, with particular emphasis on semiconductors and export-oriented businesses. The plan was revealed after a series of high-level meetings led by Choi Sang-mok, South Korea’s Deputy Prime Minister and Minister of Economy and Finance, who discussed strategies to mitigate the impact of the US tariffs.
Key Components of South Korea’s $25 Billion Plan
South Korea’s comprehensive tariff-softening plan includes several measures to protect domestic industries and bolster innovation in response to US tariffs, which have recently been increased. These measures focus on the semiconductor sector, a crucial industry for South Korea, as well as broader strategies for industry sustainability and competitiveness. Here’s how the funds are allocated:
- $17.5 Billion to support companies that are facing damages due to tariffs or dealing with export crises. This fund will provide direct assistance to industries such as automobiles, electronics, and chemicals, which are highly exposed to US tariffs.
- $7 Billion in subsidies for the semiconductor industry, bringing the total support for the sector to $23 billion. This includes direct investments in R&D, innovation, and infrastructure improvements.
- $2.1 Billion in low-interest loans for semiconductor companies. This will help local companies to access capital for upgrading technologies and scaling operations in light of trade challenges.
- Mini-Fabs: To promote domestic chip design innovation, South Korea will construct “mini-fabs”, or smaller semiconductor fabrication plants. These mini-fabs will provide demo equipment that allows fabless chip companies to quickly prototype and accelerate their designs, simulating real-world manufacturing environments.
The Importance of Mini-Fabs for South Korea’s Semiconductor Strategy
A key part of the new initiative is the creation of mini-fabs, which are expected to play a vital role in the country’s push for semiconductor innovation. These mini-fabs will serve as research and development hubs for semiconductor companies, helping them experiment with chip designs and prototypes before moving to full-scale production.
By providing demo equipment and offering dedicated spaces for R&D, South Korea aims to foster collaboration between domestic and international companies, boosting the country’s status as a leader in the semiconductor industry. The creation of these mini-fabs comes as part of the broader effort to establish a “K-semiconductor technology innovation platform”, modeled after the Interuniversity Microelectronics Centre in Belgium, which is renowned for its contributions to semiconductor R&D.
This focus on domestic innovation is designed to ensure that South Korea remains competitive in an increasingly complex global semiconductor market, especially as it faces the challenges posed by the US’s tariff policies.
Tariff Impacts and the Ongoing Trade Tensions
The US’s new “reciprocal tariff” regime has placed significant pressure on South Korean industries. Under this policy, South Korean exports, particularly semiconductors and vehicles, now face a 25% tariff when entering the US market. These tariffs are part of a broader trade dispute between the US and various countries, with the current pause in the tariff escalation set to expire in early July 2025.
South Korea’s response to this new tariff policy includes increased support for industries that depend heavily on exports to the US, such as semiconductors and automotive manufacturing. With semiconductors accounting for a significant portion of South Korean exports, the government has doubled down on supporting the sector to ensure its continued growth and global competitiveness.
A Stronger Focus on Rare Earth Recycling
In addition to the $25 billion economic package, South Korea has also launched a rare earth recycling initiative to secure a more sustainable supply of critical materials needed by its semiconductor and battery industries. Given that China controls much of the world’s rare earth supply and has imposed restrictions on sales to the US, South Korea is taking steps to ensure that it can recycle and repurpose materials that are essential for the production of high-tech components.
This initiative is part of South Korea’s broader strategy to secure its supply chains and reduce dependence on foreign countries, particularly China, which dominates the global rare earth market.
Ongoing Talks with the US on Tariffs
To address the tariff issue, Minister Choi Sang-mok will meet with US Treasury Secretary Scott Bessent next week to discuss potential solutions. The outcome of these talks could have significant implications for the $25 billion plan, either reducing the need for such a response or prompting South Korea to allocate even more funds to mitigate the impacts of the ongoing trade war.
South Korea’s Strategic Response to Trade Challenges
South Korea’s $25 billion economic package is a comprehensive effort to protect key industries from the negative effects of the US’s tariff regime. By investing in the semiconductor industry, rare earth recycling, and mini-fab infrastructure, South Korea is positioning itself for future growth and innovation. As the trade tensions with the US continue, the country’s strategic focus on innovation and industry support could help it weather the storm and maintain its competitive edge in the global market.
While the outcome of upcoming discussions with US officials remains uncertain, South Korea’s response demonstrates its commitment to supporting critical industries and future-proofing its economy in an era of increasing global trade challenges.
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