South Korea is experiencing a productivity increase attributed to artificial intelligence, although U.S.-China tensions regarding semiconductor technology may pose risks to its growth, according to analysts at Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as a significant beneficiary of the AI surge, with exports climbing over 50% compared to the previous year, as noted in a report from Bank of America Global Research. Analysts predict that South Korea’s robust investment in AI research and development, coupled with an increase in AI-related patents, will solidify its role in AI advancement.
However, potential geopolitical conflicts could negatively impact the semiconductor supply chain, particularly in light of escalating tensions between the U.S. and China, which could hinder South Korea’s AI development. Although South Korea has worked to diversify its chip exports beyond China, over 30% of its semiconductor exports went to China and Hong Kong in 2023, according to the report. Exports to the United States accounted for a similar portion.
Bank of America analysts have warned that if the U.S. heightens geopolitical tensions and 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 manufacturers rely on China for several essential chipmaking components and equipment. Disruptions in the supply chain due to increased tensions could complicate the procurement of necessary tools for chip production.
Reports indicate that the U.S. has requested South Korea to limit exports of equipment and technology for manufacturing memory and advanced logic chips to China, particularly those that surpass specifications of 14-nanometer logic chips and 18-nanometer DRAM memory chips. South Korean officials are reportedly considering the U.S. request, mindful of the potential implications for major firms such as Samsung and SK Hynix, which conduct operations in China, South Korea’s largest trading partner.
In parallel, the Biden administration is contemplating the implementation of an export control measure known as the foreign direct product rule for allies that continue supplying chipmaking tools and equipment to China. This regulation would prohibit the export of any goods to any nation if they incorporate a specified percentage of U.S. intellectual property.