South Korea is experiencing a notable productivity increase from artificial intelligence, making it one of the few economies globally to benefit in this way, according to analysts from Bank of America. However, rising tensions between the U.S. and China regarding semiconductors may pose challenges to this growth.
The semiconductor sector constitutes 17% of South Korea’s exports, and a recent report from Bank of America Global Research highlights that the nation has been a primary beneficiary of the AI surge, with exports climbing over 50% year-over-year. Looking ahead, analysts are optimistic that South Korea’s significant investments in AI research and its expanding catalog of AI-related patents will enhance its role in adopting AI technologies.
Nonetheless, analysts caution that “potential geopolitical tensions could weigh on the semiconductors supply chain,” particularly amid the escalating conflict between the U.S. and China. While South Korea has made efforts to diversify its chip exports beyond China, over 30% of its semiconductor exports in 2023 went to China and Hong Kong, with a similar percentage directed to the U.S.
Bank of America analysts warned that 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 South Korea’s memory semiconductor exports.
Additionally, South Korean chip producers rely on China for certain components and equipment necessary for chip manufacturing. Disruptions to the supply chain due to ongoing tensions could hinder the ability of South Korean companies to acquire essential tools for chip production.
The U.S. government has reportedly requested South Korea to limit exports to China of equipment and technologies used in the production of memory and advanced logic chips, specifically those classified as more advanced than 14-nanometer logic chips and 18-nanometer DRAM memory chips. South Korean officials are contemplating the U.S. request, considering the potential impact on major companies like Samsung and SK Hynix, which have significant operations in China.
In parallel, the Biden administration is reportedly considering implementing an export control mechanism known as the foreign direct product rule against allies that persist in supplying chipmaking tools and equipment to China. This regulation would prevent any product from being exported to any nation if it includes a specified percentage of U.S. intellectual property components in its manufacturing.