South Korea stands out as one of the few economies globally experiencing a productivity increase due to artificial intelligence (AI), but tensions between the United States and China over semiconductor technology could pose significant hurdles to its growth, according to analysts from Bank of America.
The semiconductor sector is crucial for South Korea, representing 17% of its exports. A report from Bank of America Global Research noted that South Korea has reaped considerable benefits from the AI boom, with exports rising over 50% year-on-year. The analysts believe that the country’s substantial investments in AI research and development, along with a growing portfolio of AI-related patents, will enhance Korea’s position in AI implementation over time.
However, the analysts cautioned that potential geopolitical tensions, particularly between the U.S. and China, could impact the semiconductor supply chain, challenging the growth of AI in South Korea. Despite diversifying chip exports from China to other regions, over 30% of South Korea’s chip exports in 2023 were directed to China and Hong Kong, which is similar to the percentage exported to the U.S.
Analysts highlighted that if U.S.-China tensions escalate and the U.S. enacts further trade restrictions on advanced or AI-related chip exports to China, it could severely impact South Korea’s memory semiconductor exports.
South Korean chip manufacturers also rely on China for essential chipmaking components and equipment. Disruptions in the supply chain due to rising tensions could hinder their ability to obtain the necessary tools for chip production.
The U.S. has reportedly requested South Korea to limit exports of equipment and technology needed for manufacturing memory chips and advanced logic chips, particularly for chips more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly considering this request, taking into account the potential effects on major South Korean companies, including Samsung and SK Hynix, which have substantial operations in China.
Additionally, the Biden administration is contemplating the application of an export control known as the foreign direct product rule on allied nations that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of any product to any nation if it has been produced using a specified percentage of U.S. intellectual property.