South Korea is experiencing a notable productivity surge attributed to artificial intelligence, yet concerns arise due to increasing U.S.-China tensions surrounding semiconductor exports, according to analysts from Bank of America.
The semiconductor sector represents 17% of South Korea’s total exports. The country has become a significant beneficiary of the AI boom, with exports rising by over 50% compared to the previous year, as stated in a report from Bank of America Global Research. Analysts anticipate that South Korea’s substantial investments in AI research and development, along with a rise in AI-related patents, will further enhance its AI adoption capabilities.
However, the report highlights that potential geopolitical conflicts may adversely impact the semiconductor supply chain. The ongoing disputes between the U.S. and China could particularly hinder South Korea’s AI growth. Although South Korea has managed to diversify its chip exports beyond China to other regions, in 2023, over 30% of its chip exports were still directed towards China and Hong Kong, with a similar percentage going to the U.S.
Bank of America analysts warned 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 affect South Korea’s memory semiconductor exports.
Additionally, South Korean semiconductor manufacturers rely on China for various chipmaking components and equipment. Disruptions in the supply chain due to rising tensions could complicate access to the necessary tools for chip production.
Reports suggest that the U.S. has requested South Korea to impose restrictions on exports of chipmaking equipment and technology to China, particularly concerning advanced logic chips beyond 14 nanometers and DRAM memory chips exceeding 18 nanometers. South Korean officials are reportedly contemplating this request, considering the potential impact on major companies like Samsung and SK Hynix, which have significant operations in China, South Korea’s largest trading partner.
Moreover, the Biden administration is reportedly contemplating the use of an export control measure known as the foreign direct product rule on allies that persist in supplying chipmaking tools to China. This regulation would restrict exporting any product to any country if it is produced using a specified percentage of components that originate from U.S. intellectual property.