South Korea is experiencing a notable productivity increase attributed to artificial intelligence, according to analysts from Bank of America. However, escalating tensions between the U.S. and China regarding semiconductor technology could present challenges to the country’s growth.
The semiconductor sector constitutes 17% of South Korea’s total exports. A report by Bank of America Global Research highlights that South Korea has become a primary benefactor of the AI boom, with semiconductor exports rising by more than 50% year-over-year. Analysts project that South Korea’s substantial investments in AI research and development, along with an increasing volume of AI-related patents, will enhance its standing in AI adoption in the long run.
Nonetheless, analysts warn that potential geopolitical conflicts may negatively affect the semiconductor supply chain, particularly due to the rising tensions between the U.S. and China. Even though South Korea has diversified its chip exports, China and Hong Kong accounted for over 30% of these exports in 2023, with exports to the U.S. being comparable.
According to Bank of America analysts, a worsening of U.S.-China relations, along with any new trade restrictions imposed by the U.S. on advanced or AI-related semiconductor exports to China, could severely impact South Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for essential components and equipment necessary for chip production. Any disruption in this supply chain resulting from geopolitical tensions could complicate access to the critical tools required for chip manufacturing.
The U.S. has reportedly requested South Korea to limit exports to China of equipment and technology used for producing memory chips and advanced logic chips, particularly those exceeding 14-nanometer technology and DRAM memory chips beyond 18-nanometer. South Korean officials are deliberating this request, considering its potential implications for local giants such as Samsung and SK Hynix, which have significant operations in China.
Simultaneously, the Biden administration is evaluating the use of an export control tool known as the foreign direct product rule, targeting allied nations that continue to supply China with chipmaking equipment. This regulation would prohibit exports to any country if the goods are produced with a specific percentage of U.S. intellectual property.