South Korea is experiencing a notable productivity increase attributed to artificial intelligence, according to analysts from Bank of America. However, they warn that tensions between the U.S. and China regarding semiconductor technology may pose risks to South Korea’s growth.
The semiconductor sector is crucial to South Korea’s economy, representing 17% of its total exports. A report from Bank of America Global Research indicates that South Korea has emerged as a primary beneficiary of the AI surge, with exports rising by over 50% year-over-year. Analysts believe that the country’s substantial investment in AI research and development and its increasing portfolio of AI-related patents will enhance its leadership in AI deployment in the long run.
Despite this optimistic outlook, analysts caution that geopolitical stresses could impact the semiconductor supply chain, particularly in light of escalating U.S.-China tensions. In 2023, over 30% of South Korea’s semiconductor exports were directed to China and Hong Kong, with a similar share going to the United States. Should tensions escalate and the U.S. impose stricter trade limitations on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports, according to Bank of America experts.
Additionally, South Korean chip manufacturers rely on China for certain essential components and equipment needed for chip production. Disruptions in the supply chain resulting from geopolitical friction may impede these manufacturers’ access to necessary tools.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology for manufacturing memory chips and advanced logic chips, specifically those using technology more advanced than 14-nanometers and DRAM chips exceeding 18-nanometers. South Korean officials are reportedly weighing this request due to potential impacts on major domestic companies like Samsung and SK Hynix, which have significant operations in China, its largest trade partner.
In a related vein, the Biden administration is considering the implementation of an export control known as the foreign direct product rule, targeting allies that persist in selling chipmaking tools and equipment to China. This rule would restrict the export of any goods to any nation if they are manufactured using a certain proportion of U.S. intellectual property.