South Korea is among the few economies worldwide experiencing an increase in productivity due to artificial intelligence, although U.S.-China tensions regarding semiconductor chips may hinder its growth, according to analysts at Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has been identified as a major beneficiary of the ongoing AI boom, with exports soaring by over 50% year-over-year, as noted in a report from Bank of America Global Research. Analysts predict that South Korea’s substantial investments in AI research and development, along with a rising number of AI-related patents, will further enhance its position in AI adoption in the future.
However, potential geopolitical conflicts, particularly between the U.S. and China, could adversely affect the semiconductor supply chain, presenting challenges to AI development in South Korea. Despite the country diversifying its chip exports away from China to other regions, China and Hong Kong accounted for more than 30% of South Korea’s chip exports in 2023, with export levels to the U.S. being comparable.
Bank of America analysts warned that if geopolitical tensions escalate and the U.S. enacts further trade restrictions on the export of advanced or AI-related chips to China, it could severely impact South Korea’s memory chip exports.
Additionally, South Korean chip manufacturers rely on China for various chipmaking components and equipment. Consequently, any disruptions in geopolitical relations could complicate the process for South Korean companies to obtain the machinery necessary for chip production.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology involved in the production of memory chips and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer specifications. South Korean officials are reportedly deliberating over this request, considering the potential impact on major corporations like Samsung and SK Hynix, which operate in China, its largest trading partner.
At the same time, the Biden administration is contemplating the use of an export control called the foreign direct product rule, targeting allies that continue to supply chipmaking tools and equipment to China. This rule prohibits the export of any product to any nation if it incorporates a specific percentage of U.S. intellectual property.