South Korea is experiencing a notable increase in productivity attributed to artificial intelligence, although analysts from Bank of America warn that rising U.S.-China tensions over semiconductor technology could hinder its growth.
According to a report from Bank of America Global Research, the semiconductor sector represents 17% of South Korea’s exports, with the country reaping significant benefits from the AI boom, evidenced by a more than 50% year-over-year rise in exports. The analysts believe that South Korea’s substantial investment in AI research and development, along with a growing number of AI-related patents, will strengthen its position in the adoption of AI technology.
Nonetheless, the analysts pointed out that geopolitical issues, particularly the escalating tensions between the U.S. and China, pose a risk to the semiconductor supply chain, which could impede South Korea’s AI growth. While South Korea has altered its export strategies to reduce dependence on China, over 30% of its chip exports still went to China and Hong Kong in 2023, with exports to the U.S. at comparable levels.
Bank of America analysts noted that if U.S.-China tensions lead to further trade restrictions on advanced or AI-related chip exports to China, it could severely impact South Korea’s memory semiconductor sector. Furthermore, South Korean chip manufacturers rely on China for specific components and equipment essential for chip production. Disruption in the supply chain due to heightened tensions could hinder these manufacturers’ ability to acquire necessary tools for chip fabrication.
The U.S. has reportedly requested that South Korea impose limits on exports to China concerning equipment and technology used for producing advanced memory and logic chips. South Korean officials are contemplating the impact of this request, especially on major companies like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
At the same time, the Biden administration is reportedly considering implementing an export control known as the foreign direct product rule targeting allies that continue to provide chipmaking tools to China. This rule would prohibit the export of any products to a country if they are produced using a specified percentage of U.S. intellectual property.