South Korea is experiencing a notable productivity increase attributed to artificial intelligence, according to analysts from Bank of America. However, there are concerns that tensions between the U.S. and China regarding semiconductor technology could hinder this growth.
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The semiconductor industry plays a crucial role in South Korea’s economy, representing 17% of the nation’s exports. Bank of America Global Research revealed that South Korea has seen a remarkable 50% increase in exports year-over-year, making it a leading beneficiary of the AI boom. Analysts believe that the country’s substantial investments in AI research and development, along with an increasing number of AI-related patents, will bolster its position in the AI landscape in the long run.
Despite these positive indicators, potential geopolitical issues could jeopardize the supply chain for semiconductors. The ongoing strife between the U.S. and China is a particular concern, given that more than 30% of South Korea’s chip exports in 2023 were directed to China and Hong Kong. The U.S. accounted for a similar share of South Korean chip exports. Bank of America analysts warn that further escalation in geopolitical tensions could lead to additional trade restrictions that may affect memory chip exports from South Korea.
Moreover, South Korean chip manufacturers rely on China for various components and equipment necessary for chip production. If tensions disrupt supply chains, acquiring essential tools for chip manufacturing may become increasingly challenging for South Korean companies.
Reports suggest that the U.S. has urged South Korea to impose restrictions on exports of equipment and technology that are essential for manufacturing advanced memory chips and logic chips. Officials in South Korea are reportedly contemplating this request due to the potential impact on major domestic firms like Samsung and SK Hynix, which have significant operations in China.
In addition, the Biden administration is reportedly considering applying an export control known as the foreign direct product rule to allies that continue to supply chipmaking tools to China. This rule would prevent the export of any goods to other countries if they contain a significant percentage of U.S. intellectual property.