South Korea is experiencing a rise in productivity driven by artificial intelligence, according to analysts at Bank of America, although ongoing tensions between the U.S. and China regarding semiconductor technology could pose risks to this growth. The semiconductor sector represents 17% of South Korea’s exports, with the nation benefiting significantly from the AI surge, highlighted by a more than 50% year-over-year increase in exports.
The analysts predict that South Korea’s substantial investments in AI research and the increasing number of AI-related patents will bolster its position in AI adoption long-term. However, they caution that geopolitical tensions, particularly between the U.S. and China, may negatively impact the semiconductor supply chain, which is crucial for AI growth in South Korea. Despite efforts to diversify chip exports away from China, over 30% of South Korea’s chip exports in 2023 still went to China and Hong Kong, with a similar percentage directed to the U.S.
The report warns that if U.S.-China tensions escalate, particularly with potential trade restrictions on advanced chips and AI technologies, it could profoundly affect South Korea’s memory semiconductor exports. Additionally, South Korean chip manufacturers rely on China for vital components and equipment, meaning that supply chain disruptions could hinder their production capabilities.
The Biden administration has reportedly requested that South Korea limit exports to China of certain chipmaking technologies and equipment. These include advanced logic chips exceeding 14-nanometer technology and DRAM memory chips over 18-nanometers. South Korean officials are reportedly considering this request due to possible impacts on major domestic companies like Samsung and SK Hynix, which have significant operations in China, their largest trading partner.
Furthermore, the U.S. is contemplating enforcing an export control measure known as the foreign direct product rule on allies that continue to sell chipmaking technology to China. This rule would bar the export of any product made with a specific percentage of U.S. intellectual property components to any country.