South Korea is experiencing a notable increase in productivity attributed to artificial intelligence, according to Bank of America analysts. However, rising tensions between the U.S. and China over semiconductor trade could pose challenges for the nation’s growth.
The semiconductor sector represents 17% of South Korea’s exports, and the country has emerged as a major beneficiary of the AI upswing, with exports soaring over 50% year-on-year, as indicated in a report by Bank of America Global Research. Analysts also project that South Korea’s significant investments in AI research and development, along with a rising number of AI-related patents, will enhance its role in AI adoption going forward.
Despite these advantages, the report highlights that geopolitical issues could impact the semiconductor supply chain, particularly given the escalating tensions between the U.S. and China. Although South Korea has begun diversifying its chip exports beyond China, both China and Hong Kong accounted for over 30% of its chip exports in 2023, which the U.S. market mirrored.
If tensions continue to escalate, particularly with the possibility of the U.S. imposing further trade restrictions on the export of advanced and AI-related chips to China, this could significantly affect Korean memory semiconductor exports, according to Bank of America analysts.
Additionally, South Korean chip manufacturers rely on China for necessary chip-making components and equipment. Disruptions in the supply chain due to geopolitical tensions could hinder South Korean companies’ ability to acquire the essential tools for chip production.
Reports indicate that the U.S. has requested South Korea to limit exports of equipment and technology to China used in the production of memory chips and advanced logic chips, specifically those with more advanced specifications than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly contemplating the U.S. request, considering the potential impact on major domestic firms like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
Moreover, the Biden administration is reportedly weighing the implementation of an export control known as the foreign direct product rule against allies that continue supplying chip-making tools and equipment to China. This rule would prevent the export of any goods to any country if they include a certain percentage of U.S. intellectual property components.