South Korea is experiencing a productivity increase due to artificial intelligence, according to analysts at Bank of America, though growing tensions between the U.S. and China regarding semiconductor production may pose challenges to its growth.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as a principal beneficiary of the AI surge, with exports increasing by over 50% year-on-year. Analysts believe that South Korea’s significant investment in AI research and development, along with a rising number of AI-related patents, will enhance its role in AI adoption over time.
However, the analysts cautioned that geopolitical tensions could negatively impact the semiconductor supply chain, particularly due to the ongoing friction between the U.S. and China. In 2023, over 30% of South Korea’s chip exports were directed towards China and Hong Kong, with exports to the U.S. being similar in volume.
The report highlighted concerns that escalating geopolitical issues could lead the U.S. to impose stricter trade restrictions on advanced semiconductor exports to China, potentially undermining memory chip exports from South Korea. Furthermore, South Korean chip manufacturers rely on China for various components and machinery necessary for chip production, meaning that supply chain disruptions could hinder their operations.
The U.S. has reportedly requested that South Korea limit the export of equipment and technology used for producing advanced memory chips and logic chips, particularly those that exceed 14-nanometer and 18-nanometer specifications. South Korean authorities are considering the impacts of this request on significant domestic firms such as Samsung and SK Hynix, which have substantial operations in China, their largest trading partner.
Additionally, the Biden administration is reportedly contemplating the application of an export control known as the foreign direct product rule on allies who continue supplying chip production tools and equipment to China. This regulation would prevent the export of any product if it contains a specified percentage of U.S. intellectual property.