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US’ Russia sanctions may hit Korea’s chip, auto industries

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Ukraine forces stand by to respond to Russia’s military offensive near the eastern border. AFP

US’ Russia sanctions may hit Korea’s chip, auto industries

As the US Biden administration imposes economic sanctions against Russia for invading Ukraine, South Korean firms including Samsung Electronics and SK hynix are expected to take collateral damage.

On February 25, President Joe Biden unveiled comprehensive economic sanctions to cripple the Russian economy. The sanctions would limit the export of products that can potentially increase Russia’s ability to advance its military and aerospace sector.

The sanctions would prohibit companies from selling products such as telecommunications equipment, lasers, sensors and of course, chips to Russia. For Samsung Electronics and SK hynix, who sold chips worth 88.5 billion won ($73.5 million) to Russia last year, the damage is inevitable unless they find an alternative market.

“All the chips in the market are based on designs by US companies, including those manufactured by Samsung Electronics and SK hynix,” a chip industry official said.

Korean Society of Semiconductor and Display Technology chairman Park Jae-geun expressed concerns that demand on the entire consumer electronics could slow down.

“The sanctions will indirectly limit the sales of chips that go inside Russian smartphones, laptops and data centers. This can curb the demand on consumer electronics and dampen the chip market,” Park said.

Korean-made cars and auto equipment, which take up 25.5 per cent and 15.1 per cent of Korea’s exports to Russia, are expected to take a hit as well.

As auto chips are manufactured by five major companies – NXP of the Netherlands, Infineon of Germany, Renesas of Japan, Texas Instruments of the US and STMicroelectronics of Switzerland – Korean cars mounted with those chips are likely to face restrictions in the Russian market.

In 2014, when Russia forcefully annexed Crimea, Korea’s export of cars and tires plunged 62.1 per cent and 55.7 per cent, respectively.

Hyundai Motor and its sister company Kia, who run factories that churn out 230,000 cars per year in Russia, are within the range of the sanctions. More than 90 per cent of Korean auto parts exports to Russia go to the two automakers.

“Last year, Korea exported auto parts worth $1.5 billion. For domestic parts companies, Russia is the biggest market next to the US and China. Due to the sanctions, they will be forced to supply their products to somewhere else, but those who can’t will take a hit,” an auto parts industry official said.

THE KOREA HERALD/ASIA NEWS NETWORK

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