South Korea is experiencing a notable increase in productivity thanks to artificial intelligence, while facing potential challenges from U.S.-China tensions over semiconductor technology, according to analysts from Bank of America.
The semiconductor sector, which constitutes 17% of South Korea’s exports, has substantially benefited from the AI surge, with exports rising over 50% year-over-year. Bank of America’s Global Research report highlights that South Korea’s substantial investments in AI research and development and a growing number of AI-related patents are likely to enhance its standing in AI adoption in the long run.
Nevertheless, analysts warn that escalating geopolitical tensions, particularly between the U.S. and China, may affect the semiconductor supply chain and hinder AI development in South Korea. Despite efforts to diversify its chip exports beyond China, over 30% of South Korea’s chip exports in 2023 were still directed to China and Hong Kong, with exports to the U.S. reflecting a similar figure.
Should U.S. tensions escalate and lead to stricter trade restrictions on the export of advanced or AI-related chip technology to China, it could severely impact South Korea’s memory semiconductor exports, according to Bank of America.
Moreover, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Disruptions to this supply chain could create challenges for these companies in acquiring essential production resources.
In a related context, U.S. officials have reportedly requested that South Korea limit exports to China of equipment and technology used to manufacture memory chips and advanced logic chips, specifically those classified as more advanced than 14-nanometers and DRAM memory chips exceeding 18-nanometers. South Korean authorities are currently evaluating this request, considering potential consequences for major firms like Samsung and SK Hynix, which have significant operations in China, their largest trading partner.
Additionally, the Biden administration is contemplating the implementation of an export control measure known as the foreign direct product rule, targeting allies that continue to supply chipmaking tools and equipment to China. This rule would prohibit the export of any product to any nation if it incorporates a specified percentage of U.S. intellectual property components.