South Korea stands out as one of the few economies globally experiencing an increase in productivity attributed to artificial intelligence, according to analysts from Bank of America. However, they caution that ongoing tensions between the U.S. and China regarding semiconductor chips could hinder this growth.
The semiconductor sector plays a significant role in South Korea’s economy, constituting 17% of its exports. A report from Bank of America Global Research indicates that South Korea has emerged as a primary beneficiary of the AI surge, with exports rising by over 50% compared to the previous year. Analysts predict that ongoing investments in AI research and development, coupled with an increasing number of AI-related patents, will bolster the nation’s position in AI utilization over the long term.
Despite these optimistic projections, analysts have noted that potential geopolitical tensions could impact the semiconductor supply chain, particularly due to escalating friction between the U.S. and China. Although South Korea has diversified its chip exports beyond China, the report highlights that over 30% of its chip exports in 2023 still went to China and Hong Kong, with a similar share directed to the U.S.
Bank of America analysts warn that should geopolitical conflicts escalate, resulting in the U.S. imposing stricter trade limitations on advanced or AI-related chip exports to China, it could severely impact South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers are reliant on China for specific components and equipment essential for chip production. Disruptions in the supply chain due to rising tensions could complicate access to the necessary tools for chip manufacturing.
Reports suggest that the U.S. has requested South Korea to limit exports of machinery and technology used in the production of memory chips and advanced logic chips, specifically those more advanced than 14-nanometers and DRAM memory chips larger than 18-nanometers. South Korean officials are reportedly considering this request, mindful of the potential consequences for major domestic companies like Samsung and SK Hynix, which have substantial operations in China, their largest trading partner.
Furthermore, the Biden administration is reportedly contemplating the implementation of an export control measure known as the foreign direct product rule on allies that continue supplying chipmaking tools and equipment to China. This rule would prevent the export of any goods produced with a certain percentage of U.S. intellectual property to any other nation.