South Korea is experiencing a notable productivity increase from artificial intelligence, but potential challenges arise from rising tensions between the U.S. and China regarding semiconductor trade, according to analysts from Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, with the nation being a major beneficiary of the AI surge, as exports have risen by over 50% year-on-year. The Bank of America Global Research report highlights that South Korea’s substantial investments in AI research and a growing number of AI-related patents are likely to enhance its position in AI adoption over the long term.
Nonetheless, the analysts caution that escalating geopolitical tensions could impact the semiconductor supply chain. Despite diversifying chip exports away from China, over 30% of South Korea’s chip exports in 2023 were directed to China and Hong Kong, with similar figures for exports to the U.S.
Bank of America analysts noted that if geopolitical tensions escalate and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely disrupt South Korea’s memory semiconductor exports. Additionally, South Korean chip manufacturers rely on China for various chipmaking components and equipment. Disruption in the supply chain would pose difficulties for these firms in acquiring the necessary tools for chip production.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technology used to produce memory chips and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly considering this request, taking into account the potential impact on major firms like Samsung and SK Hynix, which have significant operations in China—its largest trading partner.
In parallel, the Biden administration is contemplating utilizing an export control known as the foreign direct product rule, which would restrict allies from selling chipmaking tools and equipment to China. This rule would prevent the export of any goods to other nations if they are manufactured using a specific percentage of U.S. intellectual property components.