South Korea is experiencing a notable productivity increase driven by artificial intelligence, according to analysts from Bank of America, although rising tensions between the U.S. and China regarding semiconductor technology could hinder this growth.
The semiconductor sector constitutes 17% of South Korea’s exports, and the nation has emerged as a primary beneficiary of the AI surge, with export figures soaring by over 50% year-over-year. Analysts suggest that sustained investment in AI research and development, alongside a rise in AI-related patents, will bolster South Korea’s role in AI adoption in the long run.
However, the report warns that geopolitical issues could impact the semiconductor supply chain, particularly in light of increasing U.S.-China tensions. Despite South Korea’s efforts to diversify its chip exports beyond China, over 30% of its chip exports were still directed to China and Hong Kong in 2023, with exports to the U.S. being roughly equivalent.
The analysts indicate that if tensions escalate and the U.S. enacts more trade restrictions against advanced or AI-related chip exports to China, this could severely affect South Korea’s memory semiconductor exports. Additionally, South Korean chip manufacturers rely on China for certain components and equipment essential for chip production. Disruptions in the supply chain due to geopolitical tensions may complicate access to these necessary tools.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technology used in the production of memory and advanced logic chips, specifically those with a technology node greater than 14-nanometer for logic chips and 18-nanometer for DRAM memory chips. South Korean officials are contemplating this request due to potential impacts on major domestic companies such as Samsung and SK Hynix, which have significant operations in China, its largest trade partner.
Additionally, the Biden administration is rumored to be considering the application of an export control measure known as the foreign direct product rule against allies that continue to sell chipmaking tools to China. This rule would prevent the export of any goods produced using a specified percentage of U.S. intellectual property components.