South Korea is experiencing a notable productivity increase attributed to artificial intelligence, according to analysts from Bank of America. However, the ongoing tensions between the U.S. and China regarding semiconductor technology may pose a significant challenge to the country’s growth.
The semiconductor sector is vital for South Korea, comprising 17% of its exports, with a recent report highlighting that the nation has emerged as the primary beneficiary of the AI surge, boasting over a 50% increase in exports year-over-year. Analysts believe that South Korea’s substantial investment in AI research and development, coupled with a rising number of AI-related patents, will enhance its position in AI adoption in the future.
Despite these advancements, there are concerns that geopolitical tensions could adversely affect the semiconductor supply chain. The escalating conflict between the U.S. and China could hinder AI growth in South Korea. The report notes that while South Korea has been diversifying its chip exports beyond China, over 30% of its chip exports were directed to China and Hong Kong in 2023, with exports to the U.S. being approximately similar.
Bank of America analysts warned that if geopolitical tensions intensify and the U.S. enforces stricter trade restrictions on advanced or AI-related chip exports to China, it could seriously impact Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for several essential components and equipment needed for chip production. Disruptions stemming from escalating tensions may complicate access to these necessary tools.
Reports indicate that the U.S. has requested South Korea to limit exports to China of manufacturing equipment and technology used in producing memory chips and advanced logic chips, particularly those exceeding 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly considering this request due to potential consequences for major firms like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
Additionally, the Biden administration is contemplating the implementation of an export control policy known as the foreign direct product rule. This measure would prevent the export of any products to any country that incorporate a specified percentage of U.S. intellectual property components, particularly focusing on allies that continue to supply chip manufacturing tools to China.