South Korea is experiencing a notable productivity increase from artificial intelligence, emerging as one of the few economies globally to benefit significantly from the technology. Nonetheless, analysts from Bank of America warn that rising tensions between the U.S. and China regarding semiconductor chips could impede the country’s growth.
The semiconductor sector is crucial for South Korea, constituting 17% of its exports. According to a report from Bank of America Global Research, the nation has been the primary beneficiary of the AI surge, with semiconductor exports rising over 50% year-on-year. Analysts project that South Korea’s substantial investment in AI research and development, along with an increasing number of AI-related patents, will enhance its position in AI integration.
On the other hand, the report cautions that geopolitical strains may impact the semiconductor supply chain. The escalating tensions between the U.S. and China could present challenges for AI development in South Korea. Although the country has diversified its chip exports to regions beyond China, the report indicates that over 30% of its chip exports in 2023 were to China and Hong Kong, with similar figures for the U.S.
Should these geopolitical tensions escalate, resulting in new trade restrictions imposed by the U.S. on exports of advanced chips to China, it could jeopardize South Korea’s memory semiconductor exports, according to Bank of America analysts.
Furthermore, South Korean chip manufacturers rely on China for certain components and equipment crucial for chip production. Any disruptions in the supply chain due to heightened tensions would complicate access to the necessary tools for these manufacturers.
The U.S. has reportedly urged South Korea to impose restrictions on the export of equipment and technologies used for producing memory and advanced logic chips to China, specifically targeting chips with technology more advanced than 14-nanometer and DRAM chips exceeding 18-nanometer. South Korean authorities are reportedly considering this request due to potential repercussions for major South Korean corporations, like Samsung and SK Hynix, that have operations in China, its largest trading partner.
In parallel, the Biden administration is contemplating the application of an export control measure known as the foreign direct product rule on allies that continue to supply chip manufacturing tools to China. This rule prevents the export of any goods manufactured using a certain percentage of U.S. intellectual property to any country.