South Korea is experiencing a productivity increase attributed to artificial intelligence, making it one of the few global economies benefiting from this technological advancement. However, analysts from Bank of America have noted that rising tensions between the U.S. and China regarding semiconductor supply could hinder this growth.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has seen over a 50% year-on-year increase in exports linked to the AI boom, as outlined in a Global Research report. Bank of America analysts suggest that South Korea’s significant investments in AI research and development, combined with an increasing number of AI-related patents, will bolster its position in AI utilization in the long run.
Nonetheless, analysts caution that geopolitical tensions could impact the semiconductor supply chain, particularly due to the escalating conflict between the U.S. and China. Despite South Korea’s efforts to diversify chip exports to other regions, China and Hong Kong still accounted for over 30% of chip exports in 2023, with exports to the U.S. being comparable.
The report warns that if geopolitical tensions worsen and the U.S. imposes stricter trade restrictions on advanced or AI-related chip exports to China, it could critically affect South Korean memory chip exports. Additionally, South Korean chip manufacturers rely on China for essential components and equipment, and any disruptions to the supply chain could impede their ability to produce chips.
The U.S. has reportedly urged South Korea to limit exports of equipment and technology for manufacturing memory and advanced logic chips, specifically targeting chips more sophisticated than 14-nanometers and DRAM memory chips exceeding 18-nanometers. South Korean officials are evaluating this request due to potential impacts on significant firms like Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
Furthermore, the Biden administration is contemplating implementing an export control known as the foreign direct product rule, aimed at allies that continue supplying chipmaking tools to China. This regulation would prevent the export of goods produced with a certain percentage of U.S. intellectual property to any country.