South Korea is experiencing a productivity surge attributed to artificial intelligence, according to analysts from Bank of America, although escalating tensions between the U.S. and China regarding semiconductor technology could hinder its growth.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as a significant beneficiary of the AI revolution, with exports increasing by over 50% year-over-year, as detailed in a report from Bank of America Global Research. Analysts believe that South Korea’s substantial investments in AI research and development, along with a rising number of AI-related patents, will enhance its standing in AI integration.
However, the report highlights that rising geopolitical strife poses risks to the semiconductor supply chain, particularly in light of the tensions between the U.S. and China. Although South Korea has started to diversify its chip exports away from China, over 30% of its chip exports in 2023 still went to China and Hong Kong, a figure comparable to exports directed toward the U.S.
Analysts warned that if geopolitical tensions escalate, particularly if the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, this could severely impact South Korea’s memory semiconductor exports.
South Korean semiconductor manufacturers are also reliant on China for various chipmaking components and equipment. Thus, any disruption in this supply chain due to heightened tensions could pose serious challenges to South Korean companies in acquiring necessary production tools.
Reportedly, the U.S. has requested South Korea to limit exports of equipment and technology used for producing memory and advanced logic chips to China. South Korean officials are reportedly considering this request, mindful of the potential consequences for major companies like Samsung and SK Hynix, which have significant operations in China.
Additionally, the Biden administration is reportedly contemplating the implementation of an export control mechanism known as the foreign direct product rule. This rule would prohibit the export of any goods to any country that incorporates a certain percentage of U.S. intellectual property components, aiming particularly at allies that continue to supply chipmaking tools and equipment to China.