South Korea is experiencing a notable productivity increase attributed to artificial intelligence, according to analysts from Bank of America. However, they caution that rising U.S.-China tensions over semiconductors could hinder this growth.
The semiconductor sector is critical for South Korea, representing 17% of the nation’s exports. The Bank of America Global Research report highlights that South Korea has been the largest beneficiary of the AI surge, with exports rising over 50% year-on-year. Analysts believe that continuing significant investments in AI research and development, along with a growing number of AI-related patents, could enhance South Korea’s standing in AI adoption in the future.
Nonetheless, the analysts warn that potential geopolitical tensions may impact the semiconductor supply chain, particularly due to ongoing conflicts between the U.S. and China, which could pose challenges for South Korea’s AI expansion. Although South Korea has started diversifying its chip exports away from China, over 30% of its chip exports in 2023 still went to China and Hong Kong, while exports to the U.S. were approximately equivalent.
If geopolitical tensions intensify and the U.S. imposes further trade restrictions concerning advanced or AI-related chip exports to China, it could significantly impact South Korea’s memory semiconductor exports, according to Bank of America analysts.
South Korean chip manufacturers rely on China for some crucial components and equipment necessary for chip production. Hence, any disruptions to the supply chain stemming from these geopolitical tensions could complicate the ability of South Korean firms to obtain essential manufacturing tools.
Moreover, the U.S. has reportedly requested that South Korea limit exports to China of technologies and equipment used for manufacturing memory chips and advanced logic chips, specifically those operating at 14-nanometer technology and beyond for logic chips, as well as DRAM chips exceeding 18-nanometer. South Korean officials are reportedly considering the U.S. request, mindful of the potential impact on significant South Korean companies like Samsung and SK Hynix, which have substantial operations in China, its primary trading partner.
In addition, the Biden administration is contemplating invoking an export control measure known as the foreign direct product rule against allies that continue to supply chipmaking technologies to China. This regulation prohibits the export of any products manufactured using a specific percentage of U.S. intellectual property to any country.