South Korea is reportedly one of the few countries experiencing a surge in productivity due to artificial intelligence, though rising tensions between the U.S. and China regarding semiconductor chips may pose risks to this economic growth, as noted by analysts from Bank of America.
The semiconductor sector constitutes 17% of South Korea’s exports, and the nation has emerged as a primary beneficiary of the AI boom, with its exports reportedly increasing more than 50% year-over-year, according to a recent report from Bank of America Global Research. Analysts are optimistic about South Korea’s substantial investments in AI research and development and the increasing number of AI-related patents, which they believe will further strengthen the country’s position in adopting AI technologies.
Nevertheless, the analysts cautioned that “potential geopolitical tensions could weigh on the semiconductors supply chain,” particularly due to the escalating conflict between the United States and China, which presents challenges for AI growth in South Korea. While South Korea has diversified its chip exports beyond China, statistics revealed that in 2023, over 30% of its chip exports still went to China and Hong Kong, with a similar share directed towards the U.S.
The analysts warned that if geopolitical tensions worsen and the U.S. imposes new trade restrictions on advanced or AI-related chip exports to China, it could profoundly impact South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Disruption in the supply chain due to rising tensions could hinder South Korean firms’ access to essential tools for chip manufacturing.
The U.S. has reportedly requested South Korea to place restrictions on the export of equipment and technology that are crucial for producing memory and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are in discussions regarding this request, considering potential impacts on significant domestic companies like Samsung and SK Hynix, which have substantial operations in China, its largest trading partner.
In addition, the Biden administration is reportedly evaluating the implementation of an export control measure known as the foreign direct product rule, targeting allies that continue to supply chipmaking tools and equipment to China. This rule would prohibit the export of any goods to any country if they are made using a specified percentage of U.S. intellectual property components.