South Korea is experiencing a notable productivity increase attributed to artificial intelligence, according to analysts from Bank of America. However, tensions between the U.S. and China regarding semiconductor technology may pose risks to the country’s growth.
The semiconductor sector comprises 17% of South Korea’s exports, and the nation has emerged as a leading beneficiary of the AI surge, with exports rising over 50% compared to last year, as reported by Bank of America Global Research. Analysts anticipate that South Korea’s substantial investment in AI research and its expanding portfolio of AI-related patents will enhance its position in the field of AI adoption over time.
Despite this optimism, analysts caution that geopolitical frictions could impact the semiconductor supply chain, particularly amidst the escalating tensions between the U.S. and China. In 2023, more than 30% of South Korea’s chip exports were directed to China and Hong Kong, with exports to the U.S. being comparable.
Bank of America analysts warned that if geopolitical tensions escalate and the U.S. enacts further trade restrictions on advanced or AI-specific chip exports to China, it could heavily impact South Korea’s memory chip exports.
Additionally, South Korean semiconductor manufacturers rely on China for essential components and equipment in chip production. Therefore, any disruptions to this supply chain due to geopolitical issues could hinder South Korean firms’ ability to acquire the necessary tools for chip manufacturing.
In a related development, the U.S. has requested that South Korea limit exports to China concerning equipment and technology used for producing memory chips and advanced logic chips, specifically those more advanced than 14-nanometers and DRAM memory chips exceeding 18-nanometers. South Korean authorities are reportedly considering this request due to potential impacts on major South Korean companies like Samsung and SK Hynix, which have significant operations in China, the country’s largest trading partner.
Simultaneously, the Biden administration is contemplating the implementation of an export control mechanism known as the foreign direct product rule targeting allies that continue to supply chipmaking tools and equipment to China. This regulation would prohibit the export of goods to any nation if they are produced with a specified percentage of U.S. intellectual property components.