South Korea is experiencing a notable productivity increase driven by artificial intelligence, yet analysts from Bank of America warn that escalating tensions between the U.S. and China regarding semiconductor technology could hinder this growth.
According to a report by Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports, and the nation has emerged as a leading beneficiary of the AI surge, with exports soaring over 50% year-over-year. Analysts believe that South Korea’s substantial investment in AI research and development, along with a rising number of AI-related patents, will further enhance its role in AI implementation.
Nonetheless, the report cautions that geopolitical uncertainties, particularly the increasing friction between the U.S. and China, could affect the semiconductor supply chain, presenting challenges to AI advancement in South Korea. Although the country has made efforts to diversify its chip exports beyond China, over 30% of its chip exports in 2023 were still directed to China and Hong Kong, with a similar percentage going to the U.S.
Bank of America analysts highlighted that if geopolitical tensions escalate and the U.S. enacts more trade restrictions on advanced or AI-related chip exports to China, it could severely impact South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for various chipmaking components and equipment. Any disruption in this supply chain could complicate the production process for South Korean firms.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technologies essential for producing memory chips and advanced logic chips, specifically those beyond 14-nanometer technology and DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly considering this U.S. request, weighing the potential fallout on major domestic firms like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
In another development, the Biden administration is contemplating implementing an export control known as the foreign direct product rule on allies that persist in selling chipmaking tools and equipment to China. This rule stipulates that products cannot be exported to any country if they contain a specific percentage of U.S. intellectual property.