South Korea is experiencing a productivity surge driven by artificial intelligence, unique among global economies, although potential US-China tensions regarding semiconductor trade could present challenges, according to analysts from Bank of America.
A recent report highlighted that the semiconductor sector constitutes 17% of South Korea’s exports, underscoring the country’s status as a major beneficiary of the AI boom, with exports increasing by over 50% year-over-year. Analysts believe that South Korea’s significant investments in AI research and development, along with a rising number of AI-related patents, will further enhance its position in AI implementation.
However, the report cautioned that geopolitical tensions could negatively impact the semiconductor supply chain, particularly as relations between the United States and China continue to strain. Despite South Korea diversifying its chip export markets away from China, over 30% of its chip exports were directed towards China and Hong Kong in 2023, with exports to the U.S. paralleling that figure.
The analysts stated that if geopolitical tensions escalate and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could significantly hinder South Korea’s memory semiconductor exports. Additionally, South Korean chip manufacturers rely on China for various components and equipment, making it challenging to maintain production if supply chain disruptions occur.
Reports indicate that the U.S. has requested South Korea to limit exports to China of technology and equipment essential for manufacturing memory chips and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM chips beyond 18-nanometer. South Korean officials are reportedly considering this request, weighing potential repercussions for major firms like Samsung and SK Hynix, which operate within China, its largest trading partner.
In parallel, the Biden administration is reportedly contemplating employing the foreign direct product rule, an export control mechanism, on allies that continue to supply chipmaking tools and technology to China. This rule prevents the export of any products to certain countries if they contain a specified percentage of U.S. intellectual property components.