South Korea is experiencing a rise in productivity linked to artificial intelligence, according to analysts from Bank of America. However, ongoing tensions between the U.S. and China regarding the semiconductor industry could threaten this growth.
The semiconductor sector constitutes 17% of South Korea’s exports, and the nation has emerged as a key benefactor of the AI surge, with exports increasing by over 50% year-on-year. Analysts highlight that South Korea’s substantial investment in AI research and development, along with a growing number of AI-related patents, is likely to strengthen its position in AI integration.
Nonetheless, experts caution that geopolitical tensions may impact the semiconductor supply chain, particularly amidst escalating U.S.-China relations. In 2023, China and Hong Kong accounted for more than 30% of South Korea’s chip exports, with exports to the U.S. being comparable.
Bank of America analysts warn that if tensions worsen, particularly if the U.S. enacts further trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports. Moreover, South Korea’s chip manufacturers rely on China for various chipmaking components and equipment; any disruption in supply chains could hinder production capabilities.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology used in producing memory chips and advanced logic chips, particularly those involving technology beyond 14-nanometer for logic chips and 18-nanometer for DRAM memory chips. South Korean authorities are reportedly weighing this request due to potential impacts on major domestic corporations like Samsung and SK Hynix, which have operations in China, its largest trading partner.
Additionally, the Biden administration is considering implementing export controls under a rule that would restrict allies from supplying chipmaking tools to China. This regulation would prohibit the export of any goods to any nation if they incorporate a certain percentage of U.S. intellectual property.