South Korea is experiencing a productivity surge attributed to artificial intelligence, but analysts from Bank of America caution that U.S.-China tensions regarding semiconductor supply could hinder this growth. The semiconductor sector represents 17% of South Korea’s exports, and the nation has seen a remarkable 50% increase in exports, largely benefiting from the AI boom.
The Bank of America Global Research report indicates that South Korea’s substantial investments in AI research and the rising number of related patents will bolster the country’s position in AI adoption over time. However, analysts warn that geopolitical tensions, particularly between the U.S. and China, could impact the semiconductor supply chain. In 2023, China and Hong Kong accounted for over 30% of South Korea’s chip exports, similar to the U.S. share.
If U.S.-China relations worsen and the U.S. imposes further trade restrictions on AI-related chip exports to China, it could significantly affect South Korea’s memory semiconductor exports. Additionally, South Korean chip manufacturers rely on China for certain components and equipment, making it challenging to acquire necessary tools for chip production amidst supply chain disruptions.
The U.S. has reportedly asked South Korea to limit exports to China of equipment and technologies for producing advanced semiconductor chips, including memory chips over 18-nanometer and logic chips more advanced than 14-nanometer. South Korean officials are considering this request, mindful of its potential implications for major companies like Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
Meanwhile, the Biden administration is reportedly examining the use of an export control known as the foreign direct product rule against allies that persist in selling chipmaking tools to China. This rule would prevent the export of any goods produced with a significant percentage of U.S. intellectual property.