South Korea is experiencing a notable productivity increase attributed to artificial intelligence, according to analysts from Bank of America. However, they caution that rising tensions between the U.S. and China regarding semiconductor technology could pose challenges to this growth.
The semiconductor sector represents 17% of South Korea’s exports, and a report from Bank of America Global Research highlights that the country has become a leading beneficiary of the AI revolution, with exports rising by over 50% year-on-year. Analysts believe that South Korea’s significant investments in AI research and development, alongside an increasing number of AI-related patents, will strengthen its position in AI adoption in the future.
Nonetheless, the analysts warn that geopolitical tensions, particularly between the U.S. and China, may impact the semiconductor supply chain, thereby hindering AI growth in South Korea. Despite efforts to diversify chip exports away from China, the report reveals that China and Hong Kong accounted for over 30% of South Korea’s chip exports in 2023, with similar figures for exports to the U.S.
The 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 affect South Korean memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Disruptions to the supply chain could complicate access to essential tools needed for manufacturing.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology for fabricating memory chips and advanced logic chips, particularly those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly considering this request due to potential impacts on major firms, including Samsung and SK Hynix, which have operations in China, its largest trading partner.
In addition, the Biden administration is contemplating implementing an export control, known as the foreign direct product rule, targeting allies that continue to sell chipmaking tools and equipment to China. This rule would prohibit the export of any product to any nation if it is produced using a certain percentage of U.S. intellectual property components.