South Korea is experiencing a notable productivity increase attributed to artificial intelligence, as highlighted by analysts from Bank of America. However, they caution that rising U.S.-China tensions regarding semiconductor chips could pose a risk to the country’s growth.
The semiconductor sector contributes significantly to South Korea’s economy, representing 17% of its exports. According to a recent report by Bank of America Global Research, South Korea has emerged as a major beneficiary from the AI surge, witnessing a staggering 50% year-over-year increase in exports. Analysts project that ongoing investments in AI research and development, alongside a rising number of AI-related patents, will strengthen South Korea’s position in AI adoption over time.
Despite this positive outlook, analysts warned that geopolitical conflicts could impact the semiconductor supply chain, particularly due to the escalating tensions between the U.S. and China. The report noted that, while South Korea has diversified its chip exports beyond China, over 30% of its chip exports still went to China and Hong Kong in 2023, with a similar proportion directed to the U.S.
Bank of America analysts expressed concern that should geopolitical tensions escalate, especially if the U.S. enforces stricter trade regulations on exports of advanced or AI-related chips to China, it could severely harm South Korea’s memory chip export market.
Additionally, South Korean chip manufacturers rely on China for essential components and equipment in chip production. Disruptions in this supply chain due to rising tensions could complicate access to the necessary tools for chip manufacturing.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technology used in producing memory chips and advanced logic chips, particularly those that are more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean authorities are contemplating this request, considering the potential impacts on significant companies like Samsung and SK Hynix, which have substantial operations in China, its largest trading partner.
In related developments, 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 ruling would prevent the export of any item produced using a certain percentage of U.S. intellectual property to any nation.