South Korea is experiencing a notable boost in productivity driven by artificial intelligence, a trend highlighted by Bank of America analysts. However, the ongoing tensions between the U.S. and China over semiconductor manufacturing may pose challenges to this growth.
According to a report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports, with AI driving a significant increase in the country’s shipments, which have surged over 50% year-over-year. Analysts believe that South Korea’s substantial investments in AI research and development, along with an increasing number of AI-related patents, will enhance its position in AI adoption in the long run.
Nonetheless, analysts caution that geopolitical tensions, particularly between the U.S. and China, could negatively impact the semiconductor supply chain and hinder South Korea’s AI progress. While the nation has started to diversify its chip exports away from China, over 30% of its chip exports in 2023 were still directed to China and Hong Kong, with a similar portion going to the U.S.
Bank of America analysts indicate that if U.S.-China tensions worsen and new trade restrictions are imposed on exports of advanced or AI-related chips to China, South Korea’s memory semiconductor exports could face significant risks.
Moreover, South Korean chip manufacturers rely on China for various components and equipment necessary for chip production. Any disruption in this supply chain due to geopolitical issues could complicate the ability of South Korean firms to procure the needed tools for semiconductor manufacturing.
The U.S. has reportedly requested that South Korea limit exports of chipmaking tools and technologies to China, specifically targeting advanced logic chips over 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly considering this request, aware of the potential impact on major corporations like Samsung and SK Hynix, which have significant operations in China.
Meanwhile, the Biden administration is contemplating the implementation of an export control measure called the foreign direct product rule on allies that continue to supply chipmaking equipment to China. This rule would prevent the export of any goods manufactured using a certain percentage of U.S. intellectual property to any country.