South Korea is experiencing a notable productivity increase attributed to artificial intelligence, according to analysts at Bank of America. However, rising tensions between the U.S. and China regarding semiconductors could pose risks to this growth.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as a key beneficiary of the AI surge, with exports rising over 50% year-over-year. Bank of America’s Global Research report highlights South Korea’s significant investment in AI research and development, alongside an increasing volume of AI-related patents, as factors that will likely enhance its role in AI integration over the long term.
Despite these advancements, the analysts cautioned that geopolitical tensions, particularly between the U.S. and China, might impact the semiconductor supply chain negatively. In 2023, over 30% of South Korea’s chip exports went to China and Hong Kong, with a similar proportion headed to the U.S. This reliance raises concerns; if the U.S. were to impose further trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers are reliant on China for certain components and equipment essential for production. Any disruptions caused by escalating tensions could hinder the ability of South Korean companies to obtain the necessary tools for chip manufacturing.
Reports indicate that the U.S. has requested South Korea to limit exports of technology and equipment necessary for producing memory and advanced logic chips to China, particularly those more advanced than 14-nanometer for logic chips and beyond 18-nanometer for DRAM memory chips. South Korean officials are carefully considering this request due to the potential impact on major firms such as Samsung and SK Hynix, which have significant operations within China.
Additionally, the Biden administration is reportedly contemplating utilizing an export control mechanism known as the foreign direct product rule against allies that continue supplying chipmaking tools to China. This rule would prohibit exports of any items produced with a specified percentage of U.S. intellectual property to any country.