South Korea is experiencing a notable productivity increase due to advancements in artificial intelligence, but ongoing U.S.-China tensions regarding semiconductor technology may threaten its economic growth, according to analysts at Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as a key beneficiary of the AI surge, with exports rising over 50% year-over-year, as highlighted in a Bank of America Global Research report. Analysts predict that South Korea’s substantial investments in AI research and its increasing number of AI-related patents will further solidify its leadership in AI implementation.
However, the report cautioned that escalating geopolitical conflicts, particularly between the U.S. and China, could impact the semiconductor supply chain, posing a risk to South Korea’s AI development. Despite diversifying its chip exports away from China to other regions, over 30% of South Korea’s chip exports still went to China and Hong Kong in 2023, with similar figures for exports to the U.S.
If U.S.-China tensions heighten and the U.S. enforces more trade restrictions on the export of advanced or AI-related chips to China, it could severely affect South Korea’s memory chip exports, Bank of America analysts warned.
Additionally, South Korean semiconductor manufacturers rely on China for critical components and equipment needed in chip production. Disruptions in the supply chain due to heightened tensions could hinder these firms’ ability to source the necessary tools for manufacturing chips.
The U.S. has reportedly urged South Korea to limit exports to China of equipment and technology essential for producing memory chips and advanced logic chips, particularly those that are more advanced than 14-nanometer logic chips and 18-nanometer DRAM memory chips. South Korean officials are reportedly evaluating this request due to potential impacts on major corporations like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
In related developments, the Biden administration is contemplating the application of an export control known as the foreign direct product rule against allies that continue to supply chipmaking tools to China. This rule would prohibit the export of any goods to any nation if they contain a specified percentage of U.S. intellectual property.