South Korea is experiencing a significant productivity boost from artificial intelligence, making it one of the few economies benefiting positively from this advancement, according to analysts from Bank of America. However, escalating tensions between the U.S. and China regarding semiconductor technology may pose challenges to the country’s growth.
The semiconductor sector represents 17% of South Korea’s exports, with the nation being a major beneficiary of the AI surge, recording over a 50% increase in exports year-over-year. Analysts predict that South Korea’s substantial investments in AI research and development, alongside a growing array of AI-related patents, will enhance its standing in AI implementation in the long run.
Despite these advantages, analysts caution that rising geopolitical tensions might affect the semiconductor supply chain, particularly due to the U.S.-China discord. While South Korea has been diversifying its chip exports beyond China, the report notes that more than 30% of its chip exports still went to China and Hong Kong in 2023, with a similar amount directed to the U.S.
Analysts from Bank of America warn that should geopolitical conflicts escalate and the U.S. impose further trade restrictions on advanced or AI-related chips sent to China, it could significantly impact South Korea’s semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for various components and equipment necessary for chip production. Thus, if tensions disrupt supply chains, it could hinder the ability of South Korean companies to obtain essential production tools.
Reports indicate that the U.S. has requested South Korea to limit exports to China of tools and technology for manufacturing memory chips and advanced logic chips, particularly those more advanced than 14-nanometers and DRAM chips exceeding 18-nanometers. South Korean officials are reportedly contemplating the U.S. request, considering potential repercussions for major local firms like Samsung and SK Hynix, which have operations in China, its largest trading partner.
In parallel, the Biden administration is said to be evaluating the implementation of an export control known as the foreign direct product rule against allies that continue to sell chipmaking equipment and tools to China. This regulation would prevent the export of any goods to any country if they contain a specific percentage of U.S. intellectual property.