According to Bank of America analysts, South Korea is one of the few countries experiencing a productivity increase due to artificial intelligence, but rising tensions between the United States and China over semiconductor technology may pose challenges to this growth.
The semiconductor sector makes up 17% of South Korea’s exports, and the country has significantly benefitted from the AI surge, with exports rising over 50% year-over-year. Analysts project that ongoing investments in AI research and development, along with an increasing number of AI-related patents, will enhance South Korea’s position in AI adoption in the long run.
However, the analysts warned that geopolitical tensions could impact the semiconductor supply chain, particularly due to increasing conflicts between the U.S. and China. In 2023, China and Hong Kong accounted for over 30% of South Korea’s chip exports, with similar numbers for exports to the U.S.
The report suggests that if geopolitical tensions worsen and the U.S. introduces more trade restrictions on the export of advanced or AI-related chips to China, it could severely affect South Korea’s memory semiconductor exports. Additionally, South Korean chip manufacturers rely on China for essential components and equipment, making supply chain disruptions a significant concern.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technology for manufacturing memory chips and more advanced logic chips, particularly those exceeding 14-nanometer and DRAM chips beyond 18-nanometer. South Korean authorities are considering this request due to potential impacts on major firms like Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
Simultaneously, the Biden administration is said to be contemplating applying an export control known as the foreign direct product rule to allied nations that continue to supply chipmaking tools and equipment to China. This rule restricts the export of any goods made with a specific percentage of U.S. intellectual property components to any country.