South Korea is experiencing a notable increase in productivity driven by artificial intelligence, according to analysts from Bank of America. However, they warn that escalating U.S.-China tensions over semiconductor chips could pose challenges to the nation’s growth.
The semiconductor sector is critical for South Korea, accounting for 17% of its exports. A report from Bank of America Global Research highlights that South Korea has emerged as the leading beneficiary of the AI surge, with exports in this sector rising by over 50% year-on-year. The report emphasizes that South Korea’s significant investments in AI research and development, alongside a growing number of AI-related patents, are expected to enhance its position in AI adoption in the long run.
Despite these positive indicators, analysts caution that geopolitical issues could disrupt the semiconductor supply chain. The ongoing tensions between the U.S. and China could adversely affect AI growth in South Korea. While the country has sought to diversify its chip exports from China to other regions, over 30% of its semiconductor exports were still sent to China and Hong Kong in 2023, echoing a similar figure for exports to the U.S.
Bank of America analysts indicate that if geopolitical tensions worsen and the U.S. enforces further trade restrictions on advanced and AI-related chip exports to China, it could severely impact South Korea’s memory semiconductor exports.
Additionally, South Korean semiconductor manufacturers rely on China for various chipmaking components and equipment. Disruption in this supply chain due to rising tensions would hinder these manufacturers’ ability to acquire essential tools for chip production.
The U.S. has reportedly requested that South Korea limit exports to China of technology and equipment used in producing memory chips and advanced logic chips, specifically those more sophisticated than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly considering this request, weighing the potential consequences for major firms like Samsung and SK Hynix, which operate in China, their largest trade partner.
Furthermore, the Biden administration is contemplating imposing an export control measure known as the foreign direct product rule on allies that continue to sell chipmaking tools and equipment to China. This rule would prevent the export of any product to any country if it contains a specific percentage of U.S. intellectual property components.