South Korea is experiencing a productivity surge attributed to artificial intelligence, distinguishing it from many other economies, according to analysts from Bank of America. However, they warn that escalating tensions between the U.S. and China over semiconductor technologies could hinder this growth.
The semiconductor sector is crucial for South Korea, accounting for 17% of the nation’s exports. A report from Bank of America Global Research indicates that South Korea has reaped significant benefits from the AI boom, with exports rising by over 50% in the past year. The analysts project that the country’s substantial investment in AI research and development, along with an increasing number of AI-related patents, will enhance its position in the field.
Despite these advantages, the analysts caution that geopolitical tensions may impact the semiconductor supply chain. The ongoing friction between the U.S. and China is particularly concerning, especially given that more than 30% of South Korea’s semiconductor exports were directed to China and Hong Kong in 2023, with exports to the U.S. similar in scale.
The analysts highlighted the potential repercussions of heightened geopolitical tensions, noting that additional U.S. trade restrictions on exports of advanced and AI-related chips to China could severely affect South Korea’s memory chip exports.
Additionally, South Korean semiconductor manufacturers rely on China for various chipmaking components and equipment. Hence, any disruptions in this supply chain resulting from geopolitical tensions could complicate the ability of South Korean firms to acquire necessary production tools.
The U.S. has reportedly requested South Korea to limit exports of equipment and technologies used for producing both memory chips and advanced logic chips, with specific restrictions on chips exceeding 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are evaluating these requests, considering the potential impact on major firms like Samsung and SK Hynix, which operate in China—its largest trading partner.
Simultaneously, the Biden administration is said to be contemplating the application of an export control measure known as the foreign direct product rule to allies who continue supplying chipmaking tools and equipment to China. This rule prohibits the export of goods produced with a certain percentage of U.S. intellectual property, amplifying potential restrictions on the semiconductor supply chain.