South Korea is experiencing a productivity surge due to artificial intelligence, but experts warn that rising tensions between the U.S. and China over semiconductor issues could hinder its progress, according to Bank of America analysts.
The semiconductor sector makes up 17% of South Korea’s exports, and the nation has become the primary beneficiary of the AI boom, with exports rising over 50% year-on-year, a Bank of America Global Research report notes. Analysts believe that South Korea’s significant investment in AI research and development and a growing portfolio of AI-related patents will solidify its lead in AI adoption over the long term.
However, the analysts caution that escalating geopolitical tensions could impact the semiconductor supply chain, particularly amid the ongoing U.S.-China conflict. Although South Korea has sought to reduce its dependence on chip exports to China and diversify its markets, China and Hong Kong still accounted for over 30% of its chip exports in 2023, with exports to the U.S. being similar.
“If U.S.-China tensions intensify and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports,” the Bank of America analysts warned.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Disruptions in the supply chain caused by geopolitical issues could complicate access to essential manufacturing tools for these companies.
Reportedly, the U.S. has requested South Korea to limit exports to China of equipment and technology used in the production of memory chips and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly considering the U.S. request, mindful of potential repercussions on major firms like Samsung and SK Hynix, which have operations in China, its largest trading partner.
In related developments, the Biden administration is said to be contemplating the use of export controls under the foreign direct product rule on allies that continue to sell chipmaking tools and equipment to China. This rule would prohibit the export of goods produced with a certain percentage of U.S. intellectual property to any country.