South Korea is experiencing a unique productivity boost from artificial intelligence, according to analysts from Bank of America, but escalating U.S.-China tensions over semiconductor chips could hinder this growth.
According to a report from Bank of America Global Research, the semiconductor sector represents 17% of South Korea’s exports, and the country has emerged as the largest benefactor of the AI surge, boasting over a 50% increase in exports year-over-year. Analysts express optimism that South Korea’s significant investments in AI research and development, alongside an increasing number of AI-related patents, will further solidify its position in adopting AI technologies.
However, the report also warns that geopolitical tensions could disrupt the semiconductor supply chain, especially amid rising U.S.-China disputes which could present challenges to AI advancement in South Korea. Despite efforts to diversify chip exports beyond China, the report states that over 30% of South Korea’s chip exports were directed towards China and Hong Kong in 2023, with similar numbers for exports to the U.S.
The analysts caution that if U.S. tensions escalate and further trade restrictions are placed on advanced or AI-related chip exports to China, this could severely impact South Korean memory semiconductor exports. Additionally, South Korean chip manufacturers rely on China for certain chipmaking components and equipment, and any supply chain disruptions could complicate their production capabilities.
The U.S. has reportedly requested South Korea to limit exports to China of technology and equipment for manufacturing memory chips and advanced logic chips, specifically targeting logic chips more advanced than 14-nanometers and DRAM chips above 18-nanometers. South Korean officials are contemplating this request due to potential impacts on major national companies, including Samsung and SK Hynix, that have operations in China, its largest trading partner.
Moreover, the Biden administration is exploring the implementation of an export control called the foreign direct product rule against allies who continue to supply chipmaking tools and equipment to China. This regulation would prohibit the export of any goods that are manufactured using a specific percentage of U.S. intellectual property.