South Korea is among the few economies globally experiencing a productivity boost from artificial intelligence, although rising U.S.-China tensions regarding semiconductors may pose a challenge to its growth, according to analysts at Bank of America.
The semiconductor sector constitutes 17% of South Korea’s exports, and the nation has emerged as a significant beneficiary of the AI surge, with exports rising over 50% year-over-year, noted a report from Bank of America Global Research. Analysts predict that South Korea’s substantial investments in AI research and development, along with an increasing number of AI-related patents, will enhance its status in AI adoption moving forward.
However, the report also highlights that geopolitical tensions could impact the semiconductor supply chain, particularly the escalating friction between the U.S. and China, which could hinder South Korea’s AI growth. Despite efforts to diversify chip exports from China to other regions, over 30% of South Korea’s chip exports in 2023 were still directed to China and Hong Kong, with exports to the U.S. being comparable.
Analysts cautioned that if U.S.-China tensions worsen and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory chip exports.
Additionally, South Korean chip manufacturers rely on China for various chipmaking components and equipment. If geopolitical tensions disrupt the supply chain, it may impede South Korean companies’ access to essential tools for chip production.
Reports suggest that the U.S. has requested South Korea to limit exports of equipment and technology for manufacturing memory chips and advanced logic chips to China, particularly for chips more advanced than 14-nanometers and DRAM memory chips exceeding 18-nanometers. South Korean officials are reportedly deliberating the U.S. request, considering the potential impact on major South Korean corporations like Samsung and SK Hynix, both of which operate in China, the country’s largest trading partner.
In related developments, the Biden administration is reportedly contemplating implementing an export control, known as the foreign direct product rule, on allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of any product to any country if it incorporates a specific percentage of U.S. intellectual property components.