South Korea stands out as one of the few economies globally experiencing a productivity increase linked to artificial intelligence, although tensions between the U.S. and China over semiconductor technology may pose a threat to its economic growth, according to analysts from Bank of America.
The semiconductor sector is crucial for South Korea, accounting for 17% of the nation’s exports. A recent report from Bank of America Global Research noted that South Korea has emerged as the leading beneficiary of the AI boom, with exports climbing over 50% year-over-year. Analysts maintain that the country’s significant investment in AI research and development, coupled with a rising number of AI-related patents, is expected to enhance its standing in AI adoption moving forward.
Nonetheless, the report warns that potential geopolitical issues could impact the semiconductor supply chain, particularly due to escalating tensions between the U.S. and China. Although South Korea has made efforts to diversify its chip exports away from China, the report indicates that more than 30% of its chip exports were still directed to China and Hong Kong in 2023, with a similar proportion going to the U.S.
The analysts noted that if geopolitical frictions grow and the U.S. imposes further trade restrictions on advanced or AI-associated semiconductor exports to China, it could significantly impact South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for specific components and equipment necessary for chip production. Disruptions in this supply chain due to tensions could hinder South Korean companies’ ability to obtain the essential tools required for chip manufacturing.
Reports suggest that the U.S. has requested South Korea to limit exports to China of equipment and technology utilized in the fabrication of memory chips and advanced logic chips, particularly those exceeding 14-nanometer technology and DRAM memory chips beyond 18-nanometer specifications. South Korean officials are reportedly contemplating this request due to the potential effects on major domestic firms such as Samsung and SK Hynix, which conduct operations in China, its principal trading partner.
Furthermore, the Biden administration is contemplating the implementation of an export control called the foreign direct product rule against allies that continue to supply chip manufacturing tools and equipment to China. This rule would prohibit the export of goods to any nation if a specified percentage of their components originate from U.S. intellectual property.