South Korea is experiencing a productivity increase attributed to artificial intelligence, distinguishing it as one of the few economies benefiting from this technology. However, analysts from Bank of America warn that rising tensions between the U.S. and China regarding semiconductor chips could hinder this growth.
According to a report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports. The country has reaped significant rewards from the AI surge, with exports rising more than 50% year-over-year. In the long run, analysts anticipate that South Korea’s substantial investment in AI research and development, along with a rising number of AI-related patents, will enhance its position in the implementation of AI technologies.
Despite these positive trends, analysts caution that geopolitical tensions might impact the semiconductor supply chain. The escalating conflict between the U.S. and China could present obstacles to South Korea’s AI advancement. Although the nation has lessened its reliance on Chinese chip exports by diversifying to other regions, over 30% of its chip exports still went to China and Hong Kong in 2023, with exports to the U.S. being comparable.
If U.S.-China tensions escalate, especially with potential further trade restrictions on advanced or AI-related chip exports to China, South Korean memory semiconductor exports could suffer greatly, as noted by Bank of America analysts.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Disruptions in the supply chain due to geopolitical tensions could complicate the ability of South Korean firms to obtain the tools they need for chip manufacturing.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology essential for producing memory chips and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM chips exceeding 18-nanometer. South Korean officials are reportedly deliberating over this request, considering its potential impact on significant South Korean companies like Samsung and SK Hynix, which conduct business in China, their largest trading partner.
In parallel, the Biden administration is contemplating the implementation of an export control known as the foreign direct product rule, targeting allies that continue to supply chipmaking tools and equipment to China. This rule would prevent any goods from being exported if they are produced with a specified percentage of U.S. intellectual property components.