South Korea is experiencing a unique productivity boost from artificial intelligence, according to analysts from Bank of America. However, the ongoing tensions between the U.S. and China regarding semiconductors may pose a significant threat to the nation’s growth.
The semiconductor sector constitutes 17% of South Korea’s exports, and the country has emerged as a major beneficiary of the AI surge, with exports increasing by over 50% year-on-year, as highlighted in a Bank of America Global Research report. Analysts anticipate that South Korea’s substantial investments in AI research and development, coupled with a rising number of AI-related patents, will enhance its position in AI adoption in the long term.
Despite these positive indicators, the report cautions that geopolitical tensions, particularly surrounding U.S.-China relations, could impact the semiconductor supply chain and ultimately hinder AI development in South Korea. Current data indicates that over 30% of South Korea’s chip exports were directed towards China and Hong Kong in 2023, with approximately the same percentage going to the U.S.
The analysts noted that if geopolitical strains worsen and the U.S. implements additional trade restrictions on advanced or AI-related chip exports to China, South Korea’s memory semiconductor exports could suffer considerably. Furthermore, South Korean chipmakers rely on China for certain components and equipment needed for chip production, meaning that any disruptions in the supply chain could impede their manufacturing capabilities.
The U.S. has reportedly requested South Korea to limit exports of chipmaking tools and technology to China, particularly for advanced logic chips beyond 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly assessing this request, considering the potential impact on major local firms such as Samsung and SK Hynix, which have operations in China, their largest trading partner.
In addition, the Biden administration is contemplating employing export controls, specifically the foreign direct product rule, against allies that continue to sell chipmaking equipment to China. This regulation would prevent the export of any goods made with a specified percentage of U.S. intellectual property, aimed at restricting the flow of advanced technology to China.