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US urges South Korea not to fill China's deficit if Beijing bans Micron chips

The White House has asked South Korea to urge its chipmakers not to fill any market gap in China if Beijing bans Idaho-based Micron from selling chips, as it seeks to rally allies to counter Chinese economic coercion.

The US made the request as President Yoon Suk-yeol prepares to travel to Washington for a state visit on Monday, according to four people familiar with talks between the White House and the presidential office in Seoul.

China launched this month a national security review at Micronone of the three dominant players in the global Dram memory chip market, with South Korea’s Samsung Electronics and SK Hynix.

It is unclear whether the Chinese Cyberspace Administration will take punitive action following its investigation. But the stakes are high for Micron as a mainlander China and Hong Kong generated 25 percent of its $30.8 billion in revenue last year.

U.S. officials and business leaders believe the CAC investigation is Beijing’s retaliation against the tough measures President Joe Biden has taken to help prevent China from acquiring or producing advanced semiconductors.

The Micron case has emerged as a litmus test of whether Beijing is willing to take economic coercive measures against a major US company for the first time.

The United States has asked Seoul to encourage Samsung Electronics and SK Hynix to hold back from increasing sales to China if Micron is banned from selling as a result of the investigation, according to people familiar with the situation.

The White House’s request comes at a sensitive time as Yoon arrived in Washington on Monday. While the United States has worked with allies to counter China in the Indo-Pacific security region, this is the first known occasion when it has asked an ally to enlist its companies to play a role.

The South Korean embassy in Washington and Samsung did not respond to requests for comment. SK Hynix said it had not received any request from the South Korean government. Micron declined to comment.

The White House did not comment on specifics, but said the Biden and Yoon administrations had made “historic progress” by deepening cooperation on national and economic security issues, including efforts to protect “leading technologies.”

“This includes efforts to coordinate investments in the semiconductor sector, secure critical technologies and address economic coercion,” the US National Security Council said. “We expect that the upcoming state visit will further strengthen cooperation on all these fronts.”

It is unclear how Seoul has reacted. American and South Korean officials conclude the visit. They discuss many issues, including how the United States can provide Seoul with more assurances about “extended deterrence” โ€” the U.S. nuclear umbrella โ€” as North Korea ratchets up tensions on the peninsula.

The Micron-related request puts Yoon in a complicated situation. He took office last year on a platform widely seen as more hawkish on China than that of his left-leaning predecessor, Moon Jae-in. To illustrate his stance, he provoked an angry response from Beijing last week by accusing China of trying to change the status quo over Taiwan “by force”.

But his administration has also chafed at US efforts to rally allies behind its economic security agenda, amid fears that the long-term competitiveness of Samsung and SK Hynix could be undermined by US export controls.

While Samsung and SK Hynix will not welcome efforts to limit their operations in China, the US may have some leverage. When the US unveiled sweeping chip-related export controls on China last October, it granted South Korean companies with chip manufacturing facilities in China a waiver to allow them to export from the country. These exemptions must be renewed later this year. The Commerce Department said it had no update on the situation.

Memory chip makers are already under pressure from an industry glut that in the first quarter of this year triggered a 25 percent drop in the price of Dram chips, used in everything from TVs to phones.

Last week, Treasury Secretary Janet Yellen said Washington was concerned about โ€œa recent uptick coercive measures against US companies“.

A person familiar with the situation said the request to Seoul reflected the fact that the Biden team was “motivated to ensure that China will not be able to use Micron as leverage to influence or influence US policy”.

He said the United States could help stop Chinese efforts at economic coercion by showing Beijing it would work with allies and partners to undermine any such actions against American or allied companies.

China has used economic coercion against Taiwan and other countries including Lithuania and Australia. But it has refrained from taking major action against the United States even as Biden has unveiled tough controls on chip exports and imposed sanctions on other Chinese companies.

One person who recently met with Chinese officials in Beijing said they were losing patience with what they saw as American attempts to crack down on Chinese companies, suggesting they were considering retaliation.

The US request to Seoul underscores how lands are at the heart of some of the deepest fault lines between Washington and Beijing.

In December The United States put Yangtze Memory Technologies Co, a memory chip maker that the White House has called a Chinese “national champion,” on its “device list.” That means companies are barred from exporting American technology to fledgling Micron competitor without a hard-to-obtain license.

Follow Demetri Sevastopulo on Twitter

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