South Korea is experiencing a notable productivity increase attributed to artificial intelligence, according to Bank of America analysts. However, rising tensions between the U.S. and China over semiconductor technology could pose a challenge to this growth.
The semiconductor sector constitutes 17% of South Korea’s exports, making the country a significant beneficiary of the AI boom, with exports surging by over 50% year-on-year, as reported by Bank of America Global Research. Analysts predict that South Korea’s significant investments in AI research and development, along with an increase in AI-related patents, will enhance its position in AI adoption in the long run.
Nevertheless, analysts have indicated that potential geopolitical tensions may impact the semiconductor supply chain, particularly amid escalating U.S.-China relations, which could impede AI growth in South Korea. Despite diversifying chip exports away from China to other regions, China and Hong Kong still accounted for over 30% of South Korea’s chip exports in 2023, with exports to the U.S. being roughly equivalent.
If U.S. geopolitical tensions escalate and the country enacts further trade restrictions on advanced or AI-related chip exports to China, this could severely impact South Korean memory semiconductor exports, analysts warn. Additionally, South Korean chip manufacturers rely on China for certain chipmaking components and equipment, making any disruption in the supply chain a significant concern for these firms.
Reports suggest that the U.S. has requested South Korea to limit exports to China of equipment and technology used for producing memory chips and advanced logic chips, notably those exceeding 14-nanometer in technology and DRAM memory chips surpassing 18-nanometer. South Korean officials are reportedly considering this request due to potential consequences for major firms, such as Samsung and SK Hynix, which operate in China, their biggest trading partner.
In a related development, the Biden administration is reportedly evaluating the use of an export control known as the foreign direct product rule against allies that continue to supply chipmaking tools and equipment to China. This rule prohibits the export of any goods to any nation if they are produced with a specified percentage of U.S. intellectual property components.