South Korea is experiencing a unique surge in productivity driven by artificial intelligence, according to analysts from Bank of America. However, escalating U.S.-China tensions regarding semiconductor technology may pose a challenge to this growth.
The semiconductor sector represents 17% of South Korea’s total exports, and the nation has reportedly emerged as a significant beneficiary of the AI boom, with exports increasing over 50% year-on-year. Long-term projections suggest that South Korea’s significant investment in AI research and development, as well as an increasing number of AI-related patents, will bolster its standing in AI adoption.
Nonetheless, analysts caution that geopolitical tensions, particularly between the U.S. and China, could negatively impact the semiconductor supply chain, thereby affecting AI development within South Korea. Despite efforts to diversify chip exports beyond China, the nation and Hong Kong still accounted for over 30% of South Korea’s chip exports in 2023, with exports to the U.S. being similar.
Analysts warn that if U.S.-China tensions intensify and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could significantly harm South Korea’s memory semiconductor exports.
Moreover, South Korean manufacturers rely on China for certain components and equipment required for chip production. Any disruptions caused by geopolitical tensions could hinder these companies’ ability to secure the necessary tools for manufacturing chips.
Reports indicate that the U.S. has asked South Korea to limit exports to China of equipment and technology used in the production of memory chips and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly deliberating over the U.S. request due to potential ramifications for major domestic companies like Samsung and SK Hynix, which have significant operations in China, South Korea’s largest trading partner.
Additionally, the Biden administration is reportedly exploring the implementation of an export control mechanism known as the foreign direct product rule regarding allies that continue to supply chipmaking tools to China. This rule would prevent the export of any product to any country if it is manufactured with a certain proportion of U.S. intellectual property.