South Korea is experiencing a rare productivity boost from artificial intelligence, according to analysts at Bank of America, though increasing tensions between the U.S. and China regarding semiconductor technologies may pose risks to its growth trajectory.
The semiconductor sector, which represents 17% of South Korea’s exports, has significantly benefited from the AI surge, with exports rising over 50% year-over-year. Bank of America Global Research highlighted that South Korea’s substantial investment in AI research and development, coupled with an increasing number of AI-related patents, positions the country for continued advancements in AI adoption.
However, analysts express concerns that geopolitical disputes, particularly between the U.S. and China, could disrupt the semiconductor supply chain, creating challenges for AI growth in South Korea. Although the nation has made efforts to diversify its chip exports beyond China, data shows that over 30% of its chip exports went to China and Hong Kong in 2023, with a similar proportion directed to the U.S.
The analysts caution that if geopolitical tensions escalate, particularly with the U.S. imposing additional trade restrictions on advanced or AI-related chips heading to China, it could have a detrimental impact on South Korea’s memory semiconductor exports.
Furthermore, South Korean manufacturers rely on China for several essential components and equipment involved in chip production. A disruption in the supply chain due to these tensions could hinder South Korean firms’ ability to procure necessary tools for chip manufacturing.
Reports suggest that the U.S. has requested South Korea to limit exports of equipment and technologies used to fabricate memory chips and advanced logic chips to China. South Korean officials are reportedly deliberating this request, considering the potential impact on major companies such as Samsung and SK Hynix, which operate in China, South Korea’s largest trading partner.
In parallel, the Biden administration is contemplating the implementation of an export control measure known as the foreign direct product rule on allies who continue to supply chipmaking tools and equipment to China. This rule prohibits the export of goods to any country if they are produced using a specified percentage of U.S. intellectual property components.