South Korea is experiencing a notable productivity increase driven by artificial intelligence, according to analysts from Bank of America. However, they warn that escalating tensions between the U.S. and China regarding semiconductor technology may pose challenges for growth.
The semiconductor sector constitutes 17% of South Korea’s exports, with the nation emerging as a major beneficiary of the AI surge, witnessing over a 50% increase in exports year-over-year, as reported by Bank of America Global Research. Analysts predict that South Korea’s substantial investment in AI R&D, coupled with an increasing number of AI-related patents, will continue to enhance its leadership in AI adoption.
Nonetheless, the analysts caution that geopolitical tensions could impact the semiconductor supply chain, particularly as relations between the U.S. and China strain. Although South Korea has diversified its chip exports to regions beyond China, it was reported that China and Hong Kong accounted for over 30% of South Korea’s chip exports in 2023, with similar figures for exports to the United States.
They noted, “If geopolitical tensions escalate and the U.S. imposes additional trade restrictions on advanced or AI-related chip exports to China, it could significantly harm memory semiconductor exports from Korea.”
Additionally, South Korean chip manufacturers rely on China for various chipmaking components and equipment. This reliance means that any supply chain disruptions due to heightened tensions could hinder South Korean companies’ ability to obtain essential manufacturing tools.
Reports indicate that the U.S. has requested South Korea to limit exports to China of machinery and technology to manufacture memory chips and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer specifications. South Korean officials are reportedly contemplating the U.S. request due to potential implications for major local companies like Samsung and SK Hynix, which have significant operations in China, their largest trading partner.
In parallel, the Biden administration is said to be considering applying an export control known as the foreign direct product rule on allies that continue to supply chipmaking tools to China. This regulation prevents the export of any product to any nation if it incorporates a certain percentage of U.S. intellectual property.