South Korea is experiencing a notable productivity increase linked to artificial intelligence, according to analysts from Bank of America, although rising tensions between the U.S. and China may pose challenges for its ongoing growth.
The semiconductor sector, which represents 17% of South Korea’s exports, has benefited significantly from the AI boom, with exports surging over 50% year-on-year. The report from Bank of America Global Research indicates that South Korea’s substantial investment in AI research and a growing portfolio of AI-related patents are likely to enhance its position in AI integration.
However, the analysts caution that geopolitical uncertainties could impact the semiconductor supply chain, particularly due to the escalating tensions between the U.S. and China. Despite South Korea’s efforts to diversify its chip exports beyond China, data shows that over 30% of its chip exports were sent to China and Hong Kong in 2023, with exports to the U.S. being roughly equivalent.
Analysts warn that if U.S.-China tensions escalate further, particularly with additional trade restrictions on advanced or AI-related chip exports to China, the repercussions for South Korea’s memory semiconductor exports could be significant.
Moreover, South Korean chip manufacturers rely on China for critical components and equipment necessary for chip production. Disruption in these supply chains due to geopolitical issues could hinder South Korean companies’ ability to procure the essential tools for semiconductor manufacturing.
There are reports that the U.S. has requested South Korea to limit exports to China of equipment and technology required for memory chips and cutting-edge logic chips, specifically those surpassing 14-nanometer and 18-nanometer specifications, respectively. South Korean authorities are reportedly deliberating this request, considering potential impacts on major firms like Samsung and SK Hynix that maintain operations in China, South Korea’s largest trading partner.
Additionally, the Biden administration is contemplating the implementation of an export control measure known as the foreign direct product rule, which would affect allies that continue supplying chipmaking tools and equipment to China. This rule would prohibit the export of any product to any country if it incorporates a specified percentage of U.S. intellectual property.