South Korea is experiencing a productivity increase driven by artificial intelligence, distinguishing it as one of the few economies benefiting from this technological advancement. However, analysts from Bank of America warn that escalating tensions between the U.S. and China over semiconductor issues could impede this growth.
The semiconductor sector represents 17% of South Korea’s exports, with a significant boost attributed to AI, as exports have surged more than 50% year-over-year, according to a report by Bank of America Global Research. The report indicates that sustained investments in AI research and the increase in AI-related patents position South Korea to further enhance its AI capabilities.
Nonetheless, the potential for geopolitical conflicts could disrupt the semiconductor supply chain. The ongoing strife between the U.S. and China is highlighted as a major concern, especially since over 30% of South Korea’s chip exports were directed to China and Hong Kong in 2023. Exports to the U.S. accounted for a similar proportion.
Bank of America analysts have warned that if tensions escalate and the U.S. enacts additional trade restrictions on advanced or AI-related chip exports to China, South Korea’s memory semiconductor exports could suffer significantly.
Moreover, South Korean chip manufacturers rely on China for several components and tools essential for chip production. Any disruption in these supply chains could pose challenges for South Korean companies in acquiring the necessary equipment.
The U.S. has reportedly urged South Korea to limit exports of technology and equipment used in producing memory and advanced logic chips to China, particularly those more advanced than 14-nanometer logic chips and DRAM memory chips greater than 18-nanometer. South Korean officials are considering this request due to its implications for major domestic firms, including Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
Furthermore, the Biden administration is contemplating implementing an export control measure known as the foreign direct product rule on allies that continue to supply chipmaking tools and equipment to China. This rule would prohibit the export of any goods to any nation if they are produced using a certain percentage of U.S. intellectual property.