South Korea is among the few global economies experiencing a productivity increase due to artificial intelligence, according to analysts from Bank of America. However, tensions between the U.S. and China regarding semiconductor technologies may pose risks to South Korea’s economic growth.
The semiconductor sector constitutes 17% of South Korea’s total exports, and the country has emerged as a significant beneficiary of the AI surge, with exports rising more than 50% year-over-year. Bank of America Global Research indicates that South Korea’s substantial investments in AI research and development, along with a rising number of AI-related patents, are likely to bolster its position in AI utilization in the future.
Nevertheless, the analysts cautioned that potential geopolitical tensions could impact the semiconductor supply chain, particularly the increasing friction between the U.S. and China, which could hinder AI advancement in South Korea. While the nation has begun diversifying its chip exports away from China to other regions, China and Hong Kong accounted for over 30% of South Korea’s chip exports in 2023, with exports to the U.S. being approximately the same.
Analysts warned that if geopolitical tensions escalate and the U.S. imposes more trade restrictions on advanced or AI-related chip exports to China, this could severely affect South Korea’s memory semiconductor exports. Additionally, South Korean chip manufacturers rely on China for certain components and equipment essential for chip production. Disruptions in the supply chain due to tensions could complicate South Korean firms’ access to critical manufacturing tools.
Reports indicate that the U.S. has requested South Korea to limit exports to China of the technology and equipment required for producing memory chips and advanced logic chips—specifically those more advanced than 14-nanometer and DRAM memory chips greater than 18-nanometer. South Korean officials are reportedly considering the U.S. request due to potential impacts on major domestic companies, including Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
Additionally, the Biden administration is reportedly contemplating the implementation of export controls known as the foreign direct product rule on allies that continue to sell chip-making tools to China. This rule would prevent the export of any goods to any country if they incorporate a specified percentage of U.S. intellectual property components.