According to analysts from Bank of America, South Korea is one of the few economies globally experiencing a productivity increase due to artificial intelligence. However, rising tensions over semiconductor trade between the U.S. and China may pose challenges to this growth.
The semiconductor sector represents 17% of South Korea’s exports, and, as noted in a recent Bank of America Global Research report, the country has significantly benefited from the AI boom, with its exports rising over 50% compared to the previous year. Analysts anticipate that South Korea’s substantial investment in AI research and development, as well as an increasing number of AI-related patents, will enhance its capabilities in AI utilization in the long run.
Despite these positive developments, analysts warn that “potential geopolitical tensions could weigh on the semiconductors supply chain,” particularly due to escalating conflicts between the U.S. and China. Although South Korea has diversified its chip exports, over 30% still went to China and Hong Kong in 2023, with U.S. exports accounting for a similar proportion.
Bank of America analysts expressed concern that if geopolitical tensions escalate, leading the U.S. to impose additional 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 the supply chain due to heightened tensions could make it increasingly challenging for these companies to obtain the necessary tools for chip production.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology essential for manufacturing memory chips and advanced logic chips, particularly those exceeding 14-nanometer technology and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly considering this request, taking into account potential repercussions for major firms like Samsung and SK Hynix, which operate in China, its largest trading partner.
Meanwhile, the Biden administration is reportedly contemplating the use of an export control 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 any product to any country if it contains a certain percentage of U.S. intellectual property components.