South Korea is experiencing a notable productivity increase linked to artificial intelligence, according to analysts at Bank of America. However, ongoing tensions between the U.S. and China regarding semiconductor technology could pose challenges to this growth.
The semiconductor sector is crucial for South Korea, representing 17% of the country’s exports. Bank of America Global Research reports that South Korea is a major beneficiary of the AI surge, with exports rising by over 50% year-over-year. Analysts predict that further investment in AI research and development, along with an increasing number of AI-related patents, will enhance South Korea’s adoption and implementation of AI in the future.
Conversely, the analysts caution that escalating geopolitical tensions, particularly between the U.S. and China, could adversely affect the semiconductor supply chain, which is vital for AI growth in South Korea. Although South Korea has started to diversify its chip exports to other regions, over 30% of its chip exports in 2023 were still directed to China and Hong Kong, which matched exports to the U.S.
Bank of America analysts noted that additional trade restrictions imposed by the U.S. on advanced or AI-related chip exports to China could severely impact South Korea’s memory semiconductor exports. Furthermore, South Korean chip manufacturers rely on China for vital components and equipment. Disruptions in this supply chain due to geopolitical tensions could hinder the production capabilities of South Korean firms.
The U.S. has reportedly requested South Korea to limit exports of equipment and technology used for producing memory chips and advanced logic chips, especially those more advanced than 14-nanometer and DRAM chips exceeding 18-nanometer. South Korean officials are contemplating this request due to potential ramifications for significant local companies, like Samsung and SK Hynix, that operate in China, South Korea’s largest trading partner.
Additionally, the Biden administration is said to be exploring the implementation of an export control mechanism, known as the foreign direct product rule, targeting allies that continue to supply chipmaking tools and technology to China. This rule would prevent the export of any product manufactured with a specified percentage of U.S. intellectual property.