South Korea is experiencing a notable increase in productivity driven by artificial intelligence, but rising tensions between the U.S. and China over semiconductor issues could pose risks to this growth, according to Bank of America analysts.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as a significant benefactor of the AI surge, with exports rising over 50% year-over-year, as indicated in a report by Bank of America Global Research. Analysts suggest that South Korea’s substantial investments in AI research and development, coupled with the increasing number of AI-related patents, will enhance its standing in AI adoption over time.
However, the analysts caution that potential geopolitical tensions may impact the semiconductor supply chain, particularly the intensifying conflict between the U.S. and China, which could hinder AI expansion in South Korea. While South Korea has diversified its chip exports from China to other regions, over 30% of its chip exports in 2023 still went to China and Hong Kong, with exports to the U.S. being approximately equal.
The analysts noted that if geopolitical tensions escalate and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely impact Korea’s memory semiconductor export sector.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Disruptions in the supply chain due to escalating tensions would complicate the procurement of these essential tools.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology used in the production of memory chips and advanced logic chips, particularly those more advanced than 14-nanometers and DRAM memory chips beyond 18-nanometers. South Korean officials are reportedly considering this request due to its potential effects on major companies like Samsung and SK Hynix, which have operations in China, their largest trading partner.
Meanwhile, the Biden administration is reportedly evaluating the implementation of an export control known as the foreign direct product rule on allies that continue to supply chipmaking tools and equipment to China. This rule would restrict the export of any good to any country if it incorporates a specified percentage of U.S. intellectual property.