South Korea is experiencing a productivity increase from artificial intelligence, distinguishing it as one of the few economies worldwide benefiting from this technology, according to analysts from Bank of America. However, escalating tensions between the U.S. and China regarding semiconductor chips could pose risks to South Korea’s growth trajectory.
The semiconductor sector plays a significant role in South Korea’s economy, comprising 17% of the nation’s exports. A report from Bank of America Global Research highlights that South Korea has emerged as a key beneficiary of the AI boom, with exports soaring over 50% year-over-year. Analysts anticipate that South Korea’s substantial investments in AI research and development, coupled with an increase in AI-related patents, will enhance its standing in the global adoption of AI technologies.
Despite this optimistic outlook, the report warns that potential geopolitical conflicts may affect the semiconductor supply chain, particularly amid rising tensions between the U.S. and China. In 2023, more than 30% of South Korea’s chip exports were directed to China and Hong Kong, with exports to the U.S. approximating similar figures. The analysts suggest that if the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could significantly impact South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for essential components and equipment used in chip production. Disruptions in the supply chain caused by geopolitical tensions could hinder these firms from acquiring the necessary tools for semiconductor manufacturing.
The U.S. has reportedly requested South Korea to limit exports to China of equipment and technology used for producing memory chips and advanced logic chips, particularly those more advanced than 14-nanometers and DRAM memory chips beyond 18-nanometers. South Korean officials are considering this request, weighing its potential effects on major domestic companies like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
At the same time, the Biden administration is contemplating the application of an export control known as the foreign direct product rule against allies that continue to supply chipmaking tools and equipment to China. This regulation would prohibit the export of any products made with a specific proportion of U.S. intellectual property components.