South Korea’s economy is experiencing a notable productivity increase due to artificial intelligence, but tensions between the U.S. and China regarding semiconductor technology could hinder its growth, according to analysts from Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as a primary beneficiary of the AI surge, with exports rising over 50% year-on-year. Bank of America Global Research highlights that the country’s significant investment in AI research and development, coupled with an increasing number of AI-related patents, is expected to enhance its standing in AI implementation in the future.
Nonetheless, analysts caution that escalating geopolitical conflicts could impact the semiconductor supply chain. The ongoing strife between the U.S. and China is considered a particular threat to South Korea’s AI advancements. Despite efforts to diversify chip exports away from China, the report reveals that over 30% of South Korea’s chip exports in 2023 were directed towards China and Hong Kong, with exports to the U.S. being approximately equivalent.
If U.S.-China tensions worsen and the U.S. enacts further trade limitations on advanced or AI-related chip exports to China, it could critically affect South Korea’s memory chip export market, the analysts warn.
Additionally, South Korean chip manufacturers rely on China for various chipmaking components and equipment. Thus, any disruptions in the supply chain due to diplomatic tensions could hinder these companies’ ability to acquire necessary tools for chip production.
The U.S. has reportedly requested that South Korea limit its exports to China of equipment and technology utilized in the production of memory chips and advanced logic chips, particularly those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean authorities are said to be considering the U.S. request due to potential impacts on major domestic companies like Samsung and SK Hynix, which have operations in China, its largest trading partner.
In related news, the Biden administration is reportedly contemplating applying an export control known as the foreign direct product rule on allies who continue supplying chipmaking tools and equipment to China. This regulation prohibits the export of any goods to any country if they are produced using a specified percentage of U.S. intellectual property components.