South Korea is among the few nations experiencing a productivity surge due to artificial intelligence, but analysts from Bank of America warn that rising U.S.-China tensions over semiconductors could hinder its growth.
The semiconductor sector represents 17% of South Korea’s exports, and the country has emerged as a prime beneficiary of the AI sector, with exports reportedly increasing over 50% year-on-year. Analysts suggest that South Korea’s substantial investments in AI research and development, along with a rising number of AI-related patents, will enhance its position in AI adoption in the long run.
However, potential geopolitical issues may pose risks to the semiconductor supply chain, particularly the escalating tensions between the U.S. and China. Although South Korea has started to diversify its chip exports away from China, over 30% of its chip exports in 2023 still went to China and Hong Kong, with similar levels directed to the U.S.
Analysts caution that if U.S.-China tensions intensify and the United States imposes additional trade restrictions on advanced or AI-related chip exports to China, it could severely impact Korea’s memory semiconductor exports.
Furthermore, South Korean chip manufacturers rely on China for a portion of their chip-making components and equipment. If geopolitical tensions disrupt these supply chains, it would complicate the ability of South Korean firms to access the necessary tools for chip production.
The U.S. has reportedly requested South Korea to limit exports to China of equipment and technologies for fabricating memory chips and advanced logic chips, particularly those exceeding 14-nanometers and DRAM memory chips beyond 18-nanometers. South Korean authorities are evaluating the U.S. request, considering its potential impact on major companies such as Samsung and SK Hynix, both of which have significant operations in China.
In parallel, the Biden administration is reportedly contemplating the application of an export control measure known as the foreign direct product rule on allied nations that continue to sell chip-making tools to China. This rule would prevent the export of goods to any country if they are produced with a specified percentage of U.S. intellectual property.