South Korea is experiencing unique productivity gains from artificial intelligence, according to analysts from Bank of America. However, escalating U.S.-China tensions over semiconductor technology may pose risks to this growth.
The semiconductor sector represents 17% of South Korea’s total exports, and the country has emerged as a leading beneficiary of the AI surge, with exports rising over 50% compared to last year, as highlighted in a recent report from Bank of America Global Research. Analysts anticipate that South Korea’s significant investment in AI research and development, alongside an increasing number of AI-related patents, will bolster its position in AI integration moving forward.
Nonetheless, analysts caution that rising geopolitical tensions may impact the semiconductor supply chain. The ongoing friction between the U.S. and China is particularly concerning, as it presents potential challenges for AI growth in South Korea. Although the country has diversified its chip exports to other regions, over 30% of its chip exports still went to China and Hong Kong in 2023, with similar figures for exports to the United States.
Bank of America analysts warned that if geopolitical tensions worsen and the U.S. increases trade restrictions on semiconductor exports to China, it could severely disrupt South Korea’s memory semiconductor exports.
South Korean chip manufacturers rely on China for various components and equipment needed for chip production. Any disruption in the supply chain caused by these tensions could complicate access to essential tools for South Korean firms.
The U.S. has reportedly urged South Korea to limit exports to China concerning equipment and technology essential for manufacturing advanced memory chips, particularly those more advanced than 14-nanometer, and DRAM memory chips surpassing 18-nanometer. South Korean officials are reportedly considering the U.S. request due to the potential impact on major firms like Samsung and SK Hynix, which have significant operations in China.
In parallel, the Biden administration is evaluating the use of an export control measure known as the foreign direct product rule, targeting allies that continue to supply chipmaking tools and equipment to China. This rule would prohibit exporting goods to any nation if they are produced using a designated proportion of U.S. intellectual property components.