South Korea is experiencing a surge in productivity driven by artificial intelligence, making it one of the few economies worldwide to do so, according to analysts from Bank of America. However, rising tensions between the U.S. and China over semiconductor technology could hinder its growth.
The semiconductor sector constitutes 17% of South Korea’s exports, and a recent report from Bank of America Global Research indicated that the country has greatly benefited from the AI boom, with exports soaring over 50% year on year. Analysts project that South Korea’s significant investment in AI research and development, along with an increasing number of AI-related patents, will enhance its position further in AI adoption.
Nevertheless, the analysts caution that “potential geopolitical tensions could weigh on the semiconductors supply chain,” especially amidst escalating U.S.-China tensions, which could pose a challenge to South Korea’s AI growth. In 2023, more than 30% of South Korea’s chip exports were directed to China and Hong Kong, with exports to the U.S. being comparable.
Should geopolitical tensions escalate, particularly if the U.S. imposes further trade restrictions on advanced chip exports to China, it could pose a significant risk to South Korea’s memory semiconductor exports, according to the analysts.
Additionally, South Korean chip manufacturers rely on China for essential chipmaking components and equipment. Disruptions in the supply chain due to rising tensions could make it challenging for these companies to obtain the necessary tools for chip production.
Reportedly, the U.S. has requested that South Korea limit exports to China of equipment and technology used in manufacturing memory and advanced logic chips, particularly those with capabilities exceeding 14-nanometers for logic chips and 18-nanometers for DRAM memory chips. South Korean officials are currently contemplating this request, taking into account potential consequences for major firms like Samsung and SK Hynix that operate in China, its largest trading partner.
In related developments, the Biden administration is reportedly considering implementing an export control known as the foreign direct product rule against allies that continue supplying chipmaking tools and equipment to China. This rule would restrict the export of any product if a certain percentage of its components are derived from U.S. intellectual property.