South Korea is experiencing a productivity surge attributed to artificial intelligence, although escalating tensions between the U.S. and China regarding semiconductor technology may pose challenges to its economic growth, according to analysts from Bank of America.
The semiconductor sector constitutes 17% of South Korea’s exports. A report from Bank of America Global Research notes that the country has significantly benefited from the AI revolution, with exports rising over 50% year-over-year. Analysts believe that South Korea’s substantial investments in AI research and development, along with an increasing volume of AI-related patents, will strengthen its position in AI implementation in the long run.
Nevertheless, potential geopolitical conflicts could impact the semiconductor supply chain, particularly due to the ongoing U.S.-China tensions. Although South Korea has diversified its chip exports away from China, over 30% of its semiconductor exports still went to China and Hong Kong in 2023, alongside a similar amount exported to the U.S.
Bank of America analysts warned that if geopolitical tensions escalate, and the U.S. enforces stricter trade restrictions on AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports.
South Korean chip manufacturers also rely on China for certain components and equipment necessary for chip production. Disruption in this supply chain due to heightened tensions could hinder their ability to acquire essential manufacturing tools.
Recent reports indicate that the U.S. has requested South Korea to limit exports to China of technology and equipment used for producing advanced logic chips, specifically those more advanced than 14-nanometer, along with DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly contemplating this U.S. request, considering the potential consequences for major local companies such as Samsung and SK Hynix, which operate in China, their largest trading partner.
Additionally, the Biden administration is mulling over the use of an export control known as the foreign direct product rule against allies that continue supplying chip manufacturing tools to China. This regulation would prohibit exporting any goods to any country if they are produced with a certain percentage of U.S. intellectual property.