South Korea is experiencing a rare productivity boost from artificial intelligence, as noted by analysts from Bank of America. However, they caution that rising U.S.-China tensions over semiconductor chips may pose risks to this growth trajectory.
According to a report from Bank of America Global Research, the semiconductor sector comprises 17% of South Korea’s exports, which have surged over 50% year-over-year amidst the AI boom. The report emphasizes that South Korea’s significant investments in AI research and development, along with an increasing number of AI-related patents, are likely to enhance the country’s standing in AI adoption in the long run.
Nevertheless, analysts express concern that geopolitical tensions may negatively impact the supply chain for semiconductors, particularly due to the escalating friction between the U.S. and China. Despite South Korea’s efforts to diversify chip exports beyond China, the report indicates that over 30% of its chip exports in 2023 went to China and Hong Kong, with a similar amount directed to the U.S.
The analysts further warn that an escalation in U.S.-China tensions could lead to new trade restrictions on advanced chips exported to China, potentially undermining South Korea’s memory semiconductor exports.
Furthermore, South Korean chip manufacturers rely on China for specific chipmaking components and equipment. Disruption in this supply chain due to geopolitical tensions could hinder the production capabilities of South Korean companies.
Reportedly, the U.S. has requested South Korea to limit exports to China of equipment and technology used for manufacturing memory chips and advanced logic chips, specifically those beyond 14-nanometer and DRAM memory chips that exceed 18-nanometer specifications. South Korean officials are reportedly assessing this request, considering its potential impact on major enterprises like Samsung and SK Hynix, which have significant operations in China.
At the same time, the Biden administration is contemplating the implementation of an export control mechanism known as the foreign direct product rule against allies that continue to sell chip-making tools and equipment to China. This rule would prohibit the export of any goods from a country if these products are manufactured using a specified percentage of U.S. intellectual property components.