South Korea is experiencing a notable productivity increase driven by artificial intelligence, but analysts at Bank of America caution that rising tensions between the U.S. and China over semiconductor technology could hinder the nation’s growth.
According to a Global Research report from Bank of America, the semiconductor sector constitutes 17% of South Korea’s exports, and the country has been the primary beneficiary of the AI surge, with exports climbing over 50% year-on-year. Analysts predict that South Korea’s significant investments in AI research and development, along with an increasing number of AI-related patents, will enhance its standing in AI usage in the long run.
However, the analysts warn that ongoing geopolitical tensions could impact the semiconductor supply chain, particularly due to escalating conflicts between the U.S. and China. Despite South Korea diversifying its chip exports away from China, over 30% of its chip exports still went to China and Hong Kong in 2023, with exports to the U.S. being approximately equivalent.
Should geopolitical strains intensify and the U.S. impose further trade restrictions on advanced or AI-related chip exports to China, it could markedly impact South Korea’s memory semiconductor exports, the report suggests.
Additionally, South Korean semiconductor manufacturers rely on China for some essential components and equipment. Any disruptions in the supply chain due to rising tensions could complicate the ability of South Korean companies to acquire the necessary tools for chip production.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology involved in producing memory and advanced logic chips, specifically those with logic chip technology exceeding 14-nanometers and DRAM memory that goes beyond 18-nanometers. South Korean officials are reportedly considering this request in light of potential impacts on major firms such as Samsung and SK Hynix, both of which have significant operations in China, South Korea’s largest trading partner.
Meanwhile, the Biden administration is reportedly deliberating the implementation of an export control measure known as the foreign direct product rule, targeting allies that continue to supply chipmaking equipment and tools to China. This rule would prevent the export of any goods to any nation if they are produced with a specified percentage of U.S. intellectual property.