South Korea is experiencing a notable productivity increase driven by artificial intelligence, making it one of the few economies globally to benefit from this trend, according to analysts from Bank of America. However, tensions between the U.S. and China over semiconductor technology may pose challenges to South Korea’s growth.
The semiconductor sector represents 17% of South Korea’s exports, with the country reportedly being the largest beneficiary of the AI boom, seeing a year-over-year export increase of over 50%. Analysts predict that Korea’s significant investment in AI research and development and the rise in AI-related patents will strengthen its position in AI adoption further.
Despite these advantages, analysts warned that geopolitical issues, particularly the escalating U.S.-China tensions, could impact the semiconductor supply chain, thereby affecting AI growth in South Korea. Although South Korea has been diversifying its chip exports beyond China, shipments to China and Hong Kong accounted for more than 30% of its total chip exports in 2023, alongside similar exports to the U.S.
Should U.S.-China tensions intensify and additional trade restrictions be imposed on advanced or AI-related chip exports to China, it could significantly impact South Korea’s memory semiconductor exports, according to the report.
Additionally, South Korean chip manufacturers rely on China for key components and equipment necessary for chip production. As a result, any disruption in the supply chain due to escalating tensions would hinder these manufacturers’ ability to obtain the tools required for chip production.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technology crucial for producing advanced memory chips and logic chips, specifically those that are more sophisticated than 14-nanometer and 18-nanometer DRAM memory chips. South Korean officials are evaluating this request due to potential implications for major local firms, such as Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
In conjunction, the Biden administration is said to be considering implementing an export control measure known as the foreign direct product rule, aimed at allies that continue to provide chipmaking tools and equipment to China. This rule prohibits the export of any goods manufactured using a certain percentage of U.S. intellectual property to any country.