South Korea is experiencing a notable productivity increase driven by artificial intelligence, while potential challenges loom due to U.S.-China tensions regarding semiconductors, according to analysts from Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, making the country a significant beneficiary of the AI boom, with exports rising over 50% compared to the previous year, as highlighted in a report from Bank of America Global Research. The analysts believe that South Korea’s substantial investment in AI research and development, alongside a growing portfolio of AI-related patents, positions the nation favorably for further advancements in AI adoption.
However, the analysts caution that geopolitical tensions, particularly between the U.S. and China, could impact the semiconductor supply chain and pose challenges to AI growth in South Korea. Despite the country’s efforts to diversify chip exports beyond China, over 30% of its semiconductor exports in 2023 were directed to China and Hong Kong, with a similar proportion going to the U.S.
They noted that if geopolitical conflicts escalate and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely affect Korea’s memory semiconductor exports. Additionally, South Korean chip manufacturers are reliant on China for various manufacturing components and equipment. Consequently, any disruption in this supply chain could hinder South Korean firms’ ability to procure necessary tools for chip production.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technologies used in the production of memory and advanced logic chips, particularly those more sophisticated than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are considering this request, bearing in mind the potential impact on major companies like Samsung and SK Hynix, which have significant operations in China, its primary trading partner.
In response, the Biden administration is said to be contemplating the implementation of an export control known as the foreign direct product rule, targeting allies that continue to supply chipmaking tools and equipment to China. This rule would restrict the export of any product to any country if it contains a specified percentage of U.S. intellectual property components in its production.