South Korea is experiencing a rise in productivity attributed to artificial intelligence, making it one of the few global economies to benefit from this trend. However, analysts from Bank of America warn that escalating tensions between the U.S. and China regarding semiconductor technology could pose risks to this growth.
The semiconductor sector represents 17% of South Korea’s exports, and according to a Global Research report, the nation has emerged as a significant beneficiary of the AI boom, with exports increasing by more than 50% year-on-year. Analysts predict that South Korea’s substantial investments in AI research and development, along with a growing number of AI-related patents, will enhance its role in AI integration in the long run.
Nonetheless, the report highlights that potential geopolitical tensions might impact the semiconductor supply chain. In particular, the strained relationship between the U.S. and China could challenge South Korea’s AI development. Although South Korea has diversified its chip exports away from China to other regions, over 30% of its chip exports in 2023 were still directed to China and Hong Kong, which is on par with exports to the U.S.
If geopolitical strains intensify and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, this could severely impact South Korea’s memory semiconductor exports. The analysts at Bank of America expressed concern that South Korean chip manufacturers rely on China for some essential chipmaking components and equipment. Any disruptions in the supply chain due to heightened tensions would make it more challenging for these companies to acquire the necessary tools for chip production.
The U.S. has reportedly requested South Korea to limit exports to China of technology and equipment used for producing memory chips and advanced logic chips. This includes requests to restrict exports of logic chips more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are contemplating this request, considering the possible impact on major firms like Samsung and SK Hynix, which have significant operations in China, their largest trading partner.
Additionally, the Biden administration is considering implementing an export control known as the foreign direct product rule, which would affect allies that continue to supply chipmaking tools and equipment to China. This rule would prohibit the export of any goods to a country if they are manufactured with a certain percentage of U.S. intellectual property.