South Korea is experiencing one of the few productivity increases in the world attributed to artificial intelligence, though rising tensions between the U.S. and China over semiconductor technology could hamper its growth, according to analysts at Bank of America.
The semiconductor sector makes up about 17% of South Korea’s exports, and the nation has emerged as a major beneficiary of the AI wave, witnessing a year-over-year export increase of over 50%. Long-term projections by analysts suggest that South Korea’s substantial investment in AI research and development, coupled with a rising number of AI-related patents, will further bolster its AI adoption.
However, analysts warned that “potential geopolitical tensions could affect the semiconductor supply chain,” particularly the escalating conflict between the U.S. and China, which may pose a challenge to South Korea’s AI advancements. Although South Korea has begun diversifying its chip exports away from China to other regions, both China and Hong Kong accounted for over 30% of its chip exports in 2023.
If geopolitical tensions increase and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely impact memory semiconductor exports from Korea, analysts cautioned.
Additionally, South Korean chip manufacturers rely on China for essential chipmaking components and equipment. Disruption in these supply chains due to rising tensions could complicate the ability of South Korean companies to obtain the necessary tools for chip production.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technology used to manufacture memory chips and advanced logic chips, specifically those more sophisticated than 14-nanometer logic chips and DRAM memory chips exceeding 18-nanometer. South Korean officials are contemplating these requests, considering the potential impact on major South Korean corporations like Samsung and SK Hynix, both of which have significant operations in China, its largest trading partner.
Meanwhile, the Biden administration is reportedly evaluating the implementation of an export control known as the foreign direct product rule on partners that continue to supply chipmaking tools and equipment to China. This regulation would prohibit exports to any country of any product that incorporates a specific percentage of U.S. intellectual property.