South Korea is experiencing a notable increase in productivity thanks to artificial intelligence, although escalating tensions between the U.S. and China over semiconductor issues could pose challenges for its economic growth, according to analysts at Bank of America.
The semiconductor sector comprises 17% of South Korea’s exports, and the country has emerged as the top beneficiary of the AI surge, with exports rising by more than 50% year-over-year, as stated in a report by Bank of America Global Research. The analysts anticipate that South Korea’s substantial investments in AI research and development, along with a growing number of AI-related patents, will enhance its position in adopting AI technologies in the long run.
However, the analysts cautioned that geopolitical tensions might impact the supply chain for semiconductors, particularly the ongoing friction between the U.S. and China, which could hinder AI development in South Korea. Despite efforts to diversify chip exports beyond China, data shows that China and Hong Kong accounted for over 30% of South Korea’s chip exports in 2023, with a similar percentage directed towards the U.S.
If these geopolitical tensions escalate, especially if the U.S. imposes stricter trade restrictions on the export of advanced or AI-related chips to China, it could severely affect South Korea’s memory chip exports, analysts warned.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment essential for chip production. Any disruption in the supply chain due to heightened tensions would complicate access to the necessary tools for chip manufacturing.
Reports indicate that the U.S. has requested South Korea to limit its exports to China of equipment and technology related to the production of memory chips and advanced logic chips, specifically those with technology more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly considering this request amid concerns for major firms like Samsung and SK Hynix, which operate in China, South Korea’s largest trading partner.
Meanwhile, the Biden administration is contemplating the implementation of an export control mechanism known as the foreign direct product rule against allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of any product to any country if it incorporates a certain percentage of U.S. intellectual property.