South Korea is experiencing a notable productivity increase due to advancements in artificial intelligence, according to analysts from Bank of America. However, rising tensions between the United States and China regarding semiconductor production could potentially hinder this growth.
The semiconductor sector is vital for South Korea, making up 17% of its exports. A report from Bank of America Global Research highlights that the nation has significantly benefited from the AI boom, with semiconductor exports soaring over 50% compared to the previous year. Analysts believe that South Korea’s substantial investments in AI research and development, along with an increasing number of AI-related patents, will enhance its position in AI adoption.
Nonetheless, the report warns that geopolitical tensions could impact the semiconductor supply chain. Specifically, the ongoing conflicts between the U.S. and China pose challenges for South Korea’s AI advancement. Although South Korea has shifted some of its chip exports away from China to other regions, more than 30% of its chip exports still went to China and Hong Kong in 2023, with a similar volume directed to the U.S.
The report further notes that if U.S.-China tensions escalate, particularly with an increase in trade restrictions on advanced chips exported to China, this could greatly affect South Korea’s memory semiconductor exports.
South Korean chip manufacturers rely on China for critical components and equipment used in chip production. Disruptions resulting from geopolitical tensions could complicate the supply chain for these manufacturers, making it challenging to obtain the necessary tools for chip production.
Additionally, the U.S. has reportedly urged South Korea to limit exports to China of equipment and technology used in producing advanced memory and logic chips. South Korean officials are contemplating this request, acknowledging the possible ramifications for major firms in the country, such as Samsung and SK Hynix, which have substantial operations in China.
In a related move, the Biden administration is reportedly considering the implementation of an export control known as the foreign direct product rule. This measure would restrict the export of any product to any country if it incorporates a specified percentage of U.S. intellectual property, targeting allies who continue to supply chipmaking tools to China.