■ Korea's semiconductor exports have been heavily concentrated in the highly volatile memory sector, making the industry more vulnerable to downturns. - As of 2022, the proportion of the highly volatile memory semiconductor sector within Korea's semiconductor market was more than twice that of the global market. This discrepancy may have contributed to the 9.5%p decline in semiconductor exports during Q1. - Despite the growing investment in non-memory semiconductors since 2018, Korea's semiconductor industry continues to exhibit a significant reliance on the memory sector, leading to persistently high levels of volatility in semiconductor exports. ■ The trajectory of the semiconductor industry is shrouded in uncertainty, but certain indicators suggest a potential trough might occur between Q2 and Q3. - The latest replacement cycles of semiconductor-related products, coupled with the trends in production and inventory cycles, hint that the semiconductor industry may be approaching a trough. - A deceleration in the semiconductor economy is likely to exert a negative impact not only on exports but also on domestic demand via income channels. This slowdown may lead to deteriorating tax revenue conditions in 2023-2024. - However, given the relatively modest employment multiplier effect of the semiconductor industry, the repercussions on the labor market are expected to be minimal. ■ Elevating the share of the non-memory sector could contribute to reducing economic fluctuations. In addition, concerted efforts are needed to mitigate the spillover effect of intensifying geopolitical risks in recent times. - Acknowledging the growing macroeconomic significance of the semiconductor industry, the recent diversification towards increasing the investment in the non-memory sector can be viewed positively from a standpoint of economic stability. - Conversely, the semiconductor industry's high susceptibility to geopolitical risks, particularly in the context of the escalating US-China conflict, underscores the critical need to strengthen industrial, trade, and diplomatic leadership strategies to mitigate uncertainties in associated sectors.

This report is being submitted to the Korean Traders Association at the completion of our project, Development Strategy in the Information Age: Understanding the New Economics of Comparative Advantage. As stipulated in the original agreement, we have undertaken an investigation of the emerging competitive dynamics in three industries: Semiconductor memories, textiles, and automobiles. Because of the close relationship between textile and garment production, we have broadened our treatment of textiles to include a comprehensive analysis of the garment industry as well. We hope that this additional work will be of interest. In this report, we present the results of our research, interviewing, and modeling exercises. We hope that our work will make a useful contribution to the discussion of appropriate Korean development strategy for the coming decade. We also hope that our model will serve as a prototype for additional modeling exercises by our Korean colleagues. (※서문에서 발췌한 내용임)

■ Korea’s economy remained on a modest recovery path, supported by robust semiconductor exports and services activity, while manufacturing production softened. 　 　 　 　 ○ Exports continued to expand strongly in value terms, led by ICT products such as semiconductors amid robust AI-related demand. Investment in semiconductor-related sectors also remained solid. 　 　 - Although growth in semiconductor export volumes moderated, exports remained robust in value terms, supported by continued price increases. 　 　 　 　 ○ Services production continued to rise strongly, led by finance and insurance and professional, scientific, and technical services, supporting growth in total industrial production. 　 　 　 - With consumption rising modestly, activity in consumer-facing service industries also improved. 　 　 　 　 ○ However, manufacturing production edged down as the earlier rapid gains in semiconductors moderated and other segments remained subdued.

2025 KDI-CIER Seminar: Tariffs, Global Supply Chain Restructuring, and Policy Responses On 26 August, the Korea Development Institute hosted the 2025 KDI–CIER Seminar. The theme of this year’s seminar was “Tariffs, Global Supply Chain Restructuring, and Policy Responses.” Since the signing of the KDI–CIER MOU in 2023, the seminar has been conducted on a regular basis, thereby facilitating collaboration between the two leading think tanks of Korea and Taiwan to discuss the transformation of the global trade order and explore policy responses. In welcoming remarks, KDI President Dongchul Cho emphasized that the theme for this year is both timely and meaningful. He noted that trade policies and the U.S.–China trade conflict are reshaping global supply chains, which is creating significant challenges as well as new opportunities for Korea and Taiwan. He expressed his hope that the seminar would provide insights for building more resilient economic structures. President Hsien-Ming Lien of CIER also noted the positive cooperation between the two institutes. He said, “This seminar is a chance for us to share what we have been doing and what we have learned, and I hope it will help us work together more closely in the future.”     The seminar featured four presentations examining the U.S.–China trade conflict and its spillover effects from different perspectives. KDI Senior Fellow Yeongkwan Song analyzed the Trump administration’s tariff policies. He explained that their "Reciprocal Tariffs," intended to boost U.S. manufacturing and reduce trade deficits, in fact disrupted global supply chains, triggered retaliatory tariffs, and increased financial market volatility. He also noted that Korea’s trade policy now faces new challenges, including shifts in trade and investment patterns, growing dependence on critical minerals, and the need to recalibrate its FTA strategy. Shu-Fei Yang, a CIER Fellow, explained how U.S. tariffs have reshaped Taiwan’s trade structure. Since 2018, Taiwanese companies have accelerated reshoring and adopted “China+1” strategies, which led to a sharp increase in ICT exports to the United States. As a result, Taiwan’s trade surplus with the U.S. rose by 385% in 2024. She also pointed out that potential Reciprocal Tariffs and national security tariffs under Section 232 could become major challenges for Taiwan’s export industries, particularly in semiconductors, servers, and networking equipment.     KDI Fellow Heehyun Lim presented an empirical analysis of the heterogeneous impacts of the U.S.–China trade war on Korean industries. Her study found that while Korea as a whole benefited from U.S. tariffs on China, the impacts differed markedly across sectors. Capital-intensive and export-oriented industries expanded their gains by leveraging economies of scale and global networks, whereas other sectors experienced only limited or even negative effects. Based on these findings, she further emphasized the need for tailored policy support, stronger export infrastructure, and greater capital investment to enhance industrial resilience against external shocks.     Finally, CIER Fellow Chun-Yen Wu analyzed both the direct trade diversion and indirect supply chain reallocation effects of the U.S.–China trade war on Taiwan’s international trade. His analysis indicated that tariff shocks contributed not only to an increase in Taiwan’s direct exports to the United States but also to the expansion of indirect exports routed through third countries such as Vietnam and Mexico, underscoring a rerouting effect rather than a complete decoupling. He further highlighted that exports of electronic components and machinery are shifting to new assembly hubs, demonstrating the restructuring of global value chains (GVCs). The seminar underscored the significance of Korea and Taiwan sharing the common challenges posed by the U.S.–China trade conflict, while also presenting complementary perspectives grounded in their respective policy research capacities. Moving forward, both KDI and CIER reaffirmed their commitment to consolidating the foundation for cooperation by advancing joint research and academic exchanges in response to the evolving global trade environment.    Written by. Wanhee Jeon, Research Associate, Research Outcome Dissemination Unit, 044-550-4442, whjeon@kdi.re.kr

The 2nd KDI-CIER Expert Seminar Held in Taipei, Taiwan On May 22nd, KDI hosted the 2nd expert seminar with the Chung-Hua Institution for Economic Research (CIER) in Taipei, Taiwan. This year's seminar theme was "Geopolitical Issues, Supply Chains, and Regulatory Management," providing a significant platform for experts from Korea and Taiwan to present their research findings and exchange ideas.   This seminar holds substantial importance as it marks the second consecutive year of its occurrence following the MOU signed last year to strengthen exchange and cooperation between the two institutions. The inaugural seminar 2023, under the theme "Net Zero Transition," offered a meaningful discussion on emissions trading systems, carbon taxes, RE100, and other industrial and institutional differences and policies between Korea and Taiwan. This year’s seminar focused on geopolitical issues, supply chains, and regulatory systems amidst rapidly changing industrial landscapes, particularly in the semiconductor industry, against the backdrop of the US-China trade conflict and rising nationalism. The first session, "Geopolitical Issues," involved presentations and discussions on the geopolitical impacts of China and supply chain restructuring. Topics such as the accelerating decline of globalization, the US-China confrontation, the fragmentation of the global economy, natural resource conflicts, and China's economic slowdown were discussed. An in-depth analysis was conducted on various risks and geopolitical impacts, including the restriction of semiconductor equipment exports to China and China's export restrictions on gallium and germanium, amidst the spread of protectionism among major countries.     In the second session, "Global Supply Chain Issues," presenters reviewed the current status of supply chains in Korea and Taiwan, focusing on areas needing improvement or supplementation. It was pointed out that Korea's core industries are highly affected by overseas supply shocks, have a high dependence on intermediate goods imported from China, and lack competitiveness in carbon neutrality activities. The insufficiency of private and public digital supply chain infrastructure was also discussed. Recognizing that Taiwan faces similar situations, both countries exchanged views on the challenges and policy measures they are focusing on to address supply chain issues. The final session, "Regulatory Issues," introduced the background of the Regulatory Impact Analysis (RIA), current methodologies, procedures, and implementing institutions, and shared additional efforts and institutional measures for advancing regulatory reform. It was emphasized that RIA in Taiwan is not as developed as in Korea, and discussions highlighted the reasons and the need for improvement.   This seminar served as a significant opportunity to enhance economic development and mutual understanding between Korea and Taiwan through close cooperation between KDI and CIER. We hope that such activities will continue in the future. Written by Sujin Kim, Head of Research Outcome Dissemination Unit  044-550-4015, sujin@kdi.re.kr

New Exhibition Opens at the Global Knowledge Exchange & Development Center: K-Enterprise, Transformation and Convergence On January 31, 2024, the opening ceremony of the 'K-Enterprise, Transformation and Convergence' exhibition was held at the Global Knowledge Exchange & Development Center in Hongneung, Seoul. The exhibition aimed to showcase the growth journey and core strategies of leading Korean companies both domestically and internationally, focusing on their commitment to continuous challenge and innovation. The opening ceremony was attended by several prominent individuals, including KDI President Cho Dongchul, Minister of Trade, Industry, and Energy Ahn Dukgeun, Chairperson of the National Research Council for Economics, Humanities, and Social Sciences (NRC) Jung Hae-Gu, former Vice Prime Minister Jin Nyum, former Vice Prime Minister Kwon O-kyu, as well as more than 50 former and current senior government officials and business leaders from renowned companies such as Doosan, Samsung Electronics, POSCO, Hanwha, Hyundai Motor Group, CJ ENM, and LG Electronics. "I hope this exhibition will shine a light on the achievements of Korean companies that have transformed themselves from followers to leaders, and provide an opportunity to experience a glimpse of the future they are guiding," said KDI President Cho in his opening remarks. "It is very meaningful to be able to share the history of Korea, which has achieved two centuries of Western industrialization in half a century, and the examples of companies that have never stopped innovating," said NRC Chairperson Jung, in his welcome remarks. In his congratulatory remarks, Ahn, Minister of Trade, Industry and Energy said, "The exhibition's themes of transformation, convergence, and dynamism are the solution to overcoming the complex crisis facing the Korean economy." "We will promote industrial policies in the direction of increasing the dynamism of industries and companies as a whole to boost economic vitality."  In his encouraging remarks, former Vice Prime Minister Kwon O-kyu emphasized that "the challenging spirit and innovation that Korean companies have shown over the years can serve as a lesson in overcoming the difficulties the Korean economy is currently facing.“ The exhibition introduces the process of challenge and innovation of Korean companies in three stages - birth, growth, and the future- and highlights the transformation of technology and convergence of industries centered on future mobility. The exhibition creates a digital technology zone that includes mobility, connectivity, and convenience, as well as a cultural zone including entertainment, richly conveying the development and future vision of Korean companies in a storytelling format. In particular, it offers various attractions such as IONIQ 5-based robot taxi with Level 4 autonomous driving capabilities, autonomous driving demonstration videos through transparent display, and media highlights from K-movie, drama, and K-pop. • Mobility (Mobility, Evolving into a Living Space): Starting from the first domestic unique model 'Pony' and moving towards future mobility, the zone provides a look at the past, present, and future of the automobile industry as well as the petrochemical and steel industries which are transforming from basic industries to eco-friendly energy industries. • Connectivity (Hyperconnectivity, Connecting Everything in the World): The zone introduces the development of semiconductors, which are the starting point of future industries, mobile communications which enable communication with objects, and AI platform industries built on top of computation and communication, and the ultra-connected society that will be realized by the convergence of these industries. • Convenience (Technological Innovation, Changing the Way of Life): The zone provides an overview of the development of mobile devices and home appliances that have changed our lives, offering a glimpse into the future of daily life which will be transformed by electrical and electronic equipment (electronics) and robotics, attracting attention as next-generation technologies. •  Entertainment (Korean Wave, Grasping the World’s Attention): The world is paying attention to cultural content, especially the Korean Wave, which has evolved beyond art into an industry. This zone explores how the movie, drama, K-pop, and gaming industries are gaining global competitiveness. 'K-Enterprise, Transformation and Convergence' aims to provide a deeper understanding of how Korean companies are securing a leading position in the global market and the challenges and innovations they face along the way.  The exhibition is open year-round, free of charge, following its opening on January 31. Detailed program information and closing dates can be found on the Global Knowledge Exchange & Development Center website (https://www.gkedc.go.kr/?lang=en_US). Written by: Sunhan Kim, Head of Exhibition Planning Team,  02-6312-4020, shent@kdi.re.kr