According to Bank of America analysts, South Korea is experiencing a productivity increase driven by artificial intelligence, yet tensions between the U.S. and China regarding semiconductors could hinder its growth. The semiconductor sector makes up 17% of South Korea’s exports, and the country has benefitted significantly from the AI surge, with exports rising over 50% year-over-year. Analysts project that South Korea’s substantial investment in AI research and a growing number of AI-related patents will strengthen its position in AI adoption in the long run.
However, there are concerns that geopolitical tensions could impact the semiconductor supply chain, particularly due to escalating disputes between the U.S. and China. Despite South Korea’s attempts to diversify its chip exports away from China, over 30% of its chip exports in 2023 still went to China and Hong Kong, while exports to the U.S. accounted for a similar percentage. Analysts caution that any increase in geopolitical tensions and U.S. trade restrictions on advanced or AI-related chip exports to China could severely affect South Korea’s memory semiconductor exports.
South Korean chipmakers also rely on China for various chipmaking components and equipment. Disruptions in the supply chain due to heightened tensions could complicate access to the necessary tools for chip production.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technology used in the production of memory chips and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are considering this request due to potential consequences for major firms such as Samsung and SK Hynix, which have operations in China – South Korea’s largest trading partner.
Simultaneously, the Biden administration is contemplating the implementation of export controls through a regulation known as the foreign direct product rule. This rule would prevent the export of goods manufactured with a certain percentage of U.S. intellectual property components to any country if those goods are sold to China.