The Korea-US Semiconductor Alliance

Strategic Architecture of the Korea-US Chip Alliance

The semiconductor alliance between South Korea and the United States represents one of the most consequential bilateral technology relationships of the 21st century. Together, the two nations account for a commanding share of the world's most advanced chip manufacturing, memory production, and semiconductor equipment ecosystem. Korea produces approximately 17 percent of global semiconductors by revenue and controls 37 percent of sub-10nm logic chip production through Samsung Electronics' foundry operations. The United States, while having seen its share of global fabrication decline from 37 percent in 1990 to approximately 12 percent today, retains dominance in chip design (accounting for roughly 47 percent of global fabless semiconductor revenue), electronic design automation (EDA) tools, and semiconductor manufacturing equipment.

The alliance has deepened substantially since 2022, driven by converging strategic imperatives: Washington's determination to reshore advanced chip manufacturing and reduce dependence on East Asian fabrication, and Seoul's need to secure access to US technology, equipment, and markets while navigating the increasingly restrictive US-China technology decoupling. For K-Moonshot, the alliance provides essential context. Several of the programme's 12 national missions, particularly Mission 11 (AI Accelerator Chips) and Mission 12 (Quantum Computers), depend on maintaining Korea's position at the frontier of semiconductor technology, a position that is now inextricable from the US relationship.

The CHIPS and Science Act: America's $79.3 Billion Gambit

The CHIPS and Science Act, signed into law by President Biden in August 2022, allocated $79.3 billion to strengthen the US semiconductor industry. Of this, $52.7 billion was designated for manufacturing incentives (the CHIPS for America Fund), $13.2 billion for R&D programmes, $3 billion for workforce development, and $10.4 billion for investment tax credits. The legislation represented the largest single US industrial policy intervention in the semiconductor sector since the creation of SEMATECH in 1987.

Korean companies emerged as among the largest beneficiaries of CHIPS Act funding. Samsung Electronics received a preliminary award of $6.4 billion in direct subsidies to support its semiconductor fabrication complex in Taylor, Texas, where the company is constructing an advanced logic foundry. The total Samsung investment in the Taylor campus, including the company's own capital expenditure, reaches approximately $17 billion, making it one of the largest single foreign direct investments in US history. The facility is designed to manufacture chips at the sub-3nm process node, positioning it as a direct competitor to TSMC's Arizona fabs.

SK Hynix, the world's second-largest memory chipmaker and the dominant force in High Bandwidth Memory (HBM), announced a $15 billion investment to build an advanced packaging facility in West Lafayette, Indiana. The plant will focus on HBM advanced packaging, the critical manufacturing step that stacks memory dies and integrates them with logic chips for AI accelerators. With HBM demand projected to exceed $100 billion annually by 2030, driven primarily by AI training and inference workloads, SK Hynix's Indiana facility represents a strategic bet on localising the most value-added segment of the memory supply chain within the United States.

Korea's K-CHIPS Act: The Domestic Counterweight

Korea's response to the global semiconductor subsidy race came in the form of the K-CHIPS Act (formally the Special Act on National High-Tech Strategic Industries), which was amended and strengthened in March 2023 and further enhanced in subsequent legislative sessions. The K-CHIPS Act provides two principal incentive mechanisms designed to ensure that Korea's domestic semiconductor ecosystem remains globally competitive even as Korean companies invest heavily abroad.

The first mechanism is a 25 percent tax credit on semiconductor facility investment for large enterprises, with even more generous credits of up to 35 percent for small and medium-sized enterprises. This rate substantially exceeds the investment tax credits available under the US CHIPS Act (25 percent, but structured differently) and reflects Korea's recognition that it must match or exceed the incentives offered by competing jurisdictions to retain manufacturing investment.

The second mechanism is a 50 percent tax credit on semiconductor R&D expenditures, one of the most aggressive R&D incentive structures in the global semiconductor industry. This credit applies to qualifying research activities across the semiconductor value chain, from materials science and process engineering to chip design and packaging technology. The R&D credit is particularly relevant to K-Moonshot Mission 11, which targets the development of ultra-high-performance, low-power AI accelerator chips. Companies engaged in mission-aligned R&D can effectively halve their after-tax research costs, creating a powerful incentive to concentrate advanced R&D activities within Korea.

Critically, the K-CHIPS Act includes a reciprocal restriction that directly shapes the geopolitics of the alliance: companies receiving K-CHIPS tax benefits are prohibited from expanding semiconductor fabrication capacity in China for a period of 10 years. This provision, which mirrors similar guardrails in the US CHIPS Act, effectively forces Korean chipmakers to choose between Chinese market access and Korean government incentives. For Samsung, which operates a major NAND flash memory fabrication facility in Xi'an, China, this restriction has significant strategic implications, effectively capping the company's China-based production at current levels.

Korea's Semiconductor Structural Position

Understanding the strategic weight of the Korea-US alliance requires appreciating Korea's structural position in the global semiconductor supply chain. Korean companies occupy commanding positions in several critical segments.

Memory Semiconductors

Samsung Electronics and SK Hynix together control approximately 70-75 percent of the global DRAM market and roughly 50-55 percent of the NAND flash market. In the fastest-growing memory category, High Bandwidth Memory (HBM), SK Hynix holds an estimated 50-55 percent market share for HBM3E, the current generation product, with Samsung holding approximately 35-40 percent. HBM has become the critical bottleneck component for AI training systems, with NVIDIA, AMD, and other AI accelerator companies entirely dependent on Korean memory suppliers for their most advanced products.

Advanced Logic Foundry

Samsung Foundry is the world's second-largest contract chip manufacturer, trailing only TSMC. Samsung is the only foundry other than TSMC capable of manufacturing at the sub-3nm gate-all-around (GAA) process node, though it has faced yield challenges that have allowed TSMC to maintain a significant lead in advanced node market share. Samsung's foundry operations are central to Korea's ambitions in AI accelerator chip manufacturing, as domestically designed Korean AI chips from companies like Rebellions and FuriosaAI require access to leading-edge foundry capacity.

Sub-10nm Production Dominance

Korea accounts for approximately 37 percent of global sub-10nm chip production, a figure that rises when including Samsung's overseas fabs. This concentration of advanced manufacturing capability makes Korea an indispensable partner for the United States in its efforts to secure resilient semiconductor supply chains. It also makes Korea a potential vulnerability in the event of regional instability, a factor that reinforces Washington's interest in diversifying some production to US soil.

The Bilateral Coordination Framework

The Korea-US semiconductor alliance operates through multiple institutional channels beyond the headline corporate investments. The two governments have established a series of bilateral dialogue mechanisms specifically focused on semiconductor supply chain coordination.

The Korea-US Semiconductor Partnership Dialogue, launched in 2023, provides a forum for government-to-government coordination on export control implementation, supply chain mapping, and joint R&D priorities. This dialogue has become increasingly important as US export controls on China have created operational challenges for Korean chipmakers with China-based facilities. The dialogue mechanism allows Korean officials to raise specific concerns about the extraterritorial impact of US regulations on Korean corporate operations while coordinating on shared objectives such as supply chain transparency and trusted supplier verification.

At the corporate level, Samsung and SK Hynix maintain dedicated government affairs operations in Washington that engage with the Department of Commerce, the Bureau of Industry and Security (BIS), and Congressional committees on semiconductor policy. These operations have been substantially expanded since 2022, reflecting the growing importance of US regulatory decisions to Korean semiconductor companies' global strategies.

The alliance also encompasses R&D cooperation. The US National Science Foundation (NSF) and Korea's National Research Foundation (NRF) have established joint research programmes in semiconductor materials science, advanced packaging, and quantum computing hardware. These programmes, while modest in funding relative to corporate R&D budgets, serve an important signalling function and facilitate researcher exchanges that strengthen the bilateral innovation relationship.

Tensions and Fault Lines Within the Alliance

Despite its strategic logic, the Korea-US semiconductor alliance contains significant tensions that bear watching.

Subsidy Competition

The CHIPS Act and K-CHIPS Act, while complementary in their anti-China orientation, are fundamentally competitive in their objectives. Washington wants Samsung and SK Hynix to build fabs on US soil. Seoul wants to retain the most advanced production at home. The resolution of this tension depends on whether the two governments can coordinate incentive structures to avoid a zero-sum bidding war for manufacturing investment. To date, the approach has been one of managed duplication: Korean companies invest in both jurisdictions, receiving subsidies from each, while maintaining their most cutting-edge process development in Korea.

Export Control Friction

US export controls on semiconductor technology transfers to China have created persistent friction within the alliance. Korean chipmakers' China operations, particularly Samsung's Xi'an NAND facility and SK Hynix's Dalian DRAM and Wuxi packaging plants, are directly affected by US regulations restricting the transfer of advanced semiconductor manufacturing equipment. While Korean companies have operated under temporary exemptions, the August 2025 revocation of Validated End-User (VEU) status for Samsung and SK Hynix forced both companies to apply for individual export licenses for their China operations, significantly increasing operational uncertainty and compliance costs.

Technology Transfer Concerns

Korea harbours concerns about the long-term implications of extensive technology transfer to the United States. Samsung's Taylor fab and SK Hynix's Indiana plant will employ thousands of US-based engineers who will gain deep expertise in Korean semiconductor manufacturing processes. While this is a desired outcome from the US perspective, some Korean policymakers and industry analysts have raised concerns about the potential for this knowledge diffusion to strengthen future US-based competitors or reduce Korea's technological leverage in the bilateral relationship.

Tariff and Trade Policy Uncertainty

The imposition of a 25 percent tariff on AI chips in April 2025 introduced a new dimension of uncertainty into the alliance. While the tariff primarily targeted Chinese AI chip imports, its broader application created additional cost burdens for the global semiconductor supply chain, including for Korean companies importing US-designed chips for their domestic AI infrastructure build-out under K-Moonshot. Korea's semiconductor response package of 33 trillion KRW ($23.2 billion) was, in part, a reaction to the cumulative impact of US trade policy actions on the Korean semiconductor ecosystem.

Strategic Implications for K-Moonshot

The Korea-US semiconductor alliance creates both opportunities and constraints for the K-Moonshot programme. On the opportunity side, the alliance ensures that Korean chipmakers maintain access to US semiconductor manufacturing equipment (Applied Materials, Lam Research, KLA), EDA tools (Synopsys, Cadence), and chip design IP (Arm, Qualcomm). This access is essential for K-Moonshot missions that depend on cutting-edge semiconductor technology, including Mission 11's AI accelerator chip development and the sovereign AI infrastructure build-out requiring hundreds of thousands of advanced GPUs and NPUs.

The alliance also provides market access benefits. Korean semiconductor companies' expanding US manufacturing presence strengthens their position as preferred suppliers to American hyperscalers (Google, Amazon, Microsoft, Meta) whose AI infrastructure spending drives global demand for HBM and advanced logic chips. This demand, in turn, generates the revenue that funds Korean companies' domestic R&D investments aligned with K-Moonshot objectives.

On the constraint side, the alliance's anti-China guardrails, including the K-CHIPS Act's 10-year restriction on China fab expansion, limit Korean companies' ability to serve the Chinese market from Korean-subsidised facilities. Given that China remains the world's largest single semiconductor market, this constraint imposes real commercial costs. Samsung's inability to expand its Xi'an NAND operations or invest CHIPS Act-subsidised technology in China reduces the company's flexibility in responding to Chinese demand patterns. The Korea-China technology competition analysis examines these dynamics in greater detail.

The K-CHIPS Act's generous R&D tax credits, however, create a powerful positive feedback loop for K-Moonshot. By reducing the effective cost of semiconductor R&D by 50 percent, the act incentivises Korean companies and research institutions to concentrate advanced chip research within Korea. This directly supports Mission 11's objective of developing domestically designed AI accelerator chips, as the R&D costs of developing next-generation NPU architectures, advanced packaging techniques, and low-power inference accelerators are substantially defrayed by the tax credit structure.

Outlook: Alliance Deepening Amid Uncertainty

The Korea-US semiconductor alliance is likely to deepen further over the medium term, driven by structural forces that outweigh the bilateral tensions. Both nations face a shared strategic imperative to maintain technological leadership over China in advanced semiconductors, a goal that neither can achieve independently. The United States lacks the manufacturing workforce and institutional knowledge to rapidly rebuild its fabrication base without Korean expertise. Korea lacks the design ecosystem, equipment industry, and market scale to sustain its semiconductor position without US partnership.

Key developments to monitor include the timeline and yield performance of Samsung's Taylor fab (critical for Samsung Foundry's competitive position against TSMC), the ramp-up of SK Hynix's Indiana HBM packaging capacity (which will test the viability of US-based advanced packaging at scale), and the evolution of US export control policy toward China (which will continue to shape the operational parameters within which Korean chipmakers must operate).

For K-Moonshot's execution, the alliance provides essential technological underpinnings while imposing geopolitical constraints that Korea's policymakers must navigate with precision. The programme's success in semiconductor-related missions will depend not only on domestic R&D investment and talent development but also on Korea's ability to maintain a productive, if occasionally tense, technology partnership with the United States. The stakes are measured not merely in market share percentages but in national technological sovereignty, the central animating objective of the K-Moonshot initiative itself.