South Korea is experiencing a notable increase in productivity driven by artificial intelligence, but analysts from Bank of America warn that growing tensions between the U.S. and China regarding semiconductor technology could hinder this growth.
The semiconductor sector represents 17% of South Korea’s exports, with the nation positioned as a major beneficiary of the AI surge, reporting a more than 50% rise in exports year-over-year, according to a report from Bank of America Global Research. Analysts believe that South Korea’s substantial investments in AI research and development, coupled with an increasing number of related patents, will enhance its standing in the adoption of AI technologies over time.
However, the report cautions that geopolitical conflicts might impact the supply chain of semiconductors—particularly the escalating tensions between the U.S. and China—which could pose significant challenges to the growth of AI in South Korea. Despite diversifying chip exports away from China, the report notes that China and Hong Kong accounted for over 30% of South Korea’s chip exports in 2023, with roughly the same percentage going to the U.S.
Should geopolitical tensions intensify and the U.S. impose stricter trade limitations on the export of advanced or AI-related chips to China, it could severely affect South Korea’s memory semiconductor exports, analysts indicated.
Additionally, South Korean chip producers rely on China for essential components and equipment for chip manufacturing. Thus, disruptions in the supply chain due to heightened tensions could complicate the procurement of necessary tools for chip production.
Reports suggest that the U.S. has requested South Korea to limit exports to China of equipment and technology necessary for producing advanced memory and logic chips, especially those beyond the 14-nanometer and 18-nanometer thresholds, respectively. South Korean officials are assessing this request, considering the potential impact on major domestic firms, including Samsung and SK Hynix, which have significant operations in China—its largest trading partner.
Furthermore, the Biden administration is reportedly contemplating the application of an export control known as the foreign direct product rule on allies that continue supplying chipmaking tools to China. This rule would prevent the export of certain goods to any country if they incorporate a specific percentage of U.S. intellectual property components.