South Korea is experiencing a rare increase in productivity attributed to artificial intelligence, but analysts from Bank of America warn that escalating U.S.-China tensions over semiconductor technology could hinder this growth.
According to a report from Bank of America Global Research, the semiconductor sector represents 17% of South Korea’s exports, making it a crucial player in the AI boom, with exports surging over 50% year-over-year. The report highlights that South Korea’s significant investment in AI research and development, alongside an increasing number of AI-related patents, is expected to enhance the country’s position in AI adoption further.
Nevertheless, analysts caution that geopolitical tensions may impact the semiconductor supply chain, particularly as the U.S.-China relationship grows strained. While South Korea has worked to diversify its chip exports beyond China, both China and Hong Kong accounted for over 30% of its chip exports in 2023, with the U.S. accounting for a similar proportion.
The analysts from Bank of America stated that should geopolitical conflicts worsen and the U.S. impose further trade restrictions on advanced or AI-related chip exports to China, it could significantly affect South Korea’s memory semiconductor exports. Additionally, the South Korean semiconductor industry relies on China for several chipmaking components and equipment, making it vulnerable to potential supply chain disruptions caused by heightened tensions.
Reports suggest that the U.S. has requested South Korea to limit exports to China of equipment and technology used for producing memory chips and advanced logic chips, especially those that exceed 14-nanometer and 18-nanometer specifications. South Korean officials are reportedly deliberating on this request due to the potential consequences for major domestic companies like Samsung and SK Hynix, which have substantial operations in China, the country’s largest trading partner.
Meanwhile, 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 chipmaking tools and equipment to China. This regulation would prevent the export of goods made with a certain percentage of U.S. intellectual property to any country.