A recent report by Bank of America analysts indicates that South Korea is experiencing a rare productivity increase from artificial intelligence, despite potential challenges posed by U.S.-China tensions regarding semiconductor technology. The semiconductor sector represents 17% of South Korea’s exports, and the nation has benefited significantly from the AI boom, with exports rising over 50% year-on-year. Analysts believe that South Korea’s substantial investments in AI research and development, along with a growing number of AI-related patents, will enhance its AI adoption in the future.
However, the analysts caution that escalating geopolitical tensions, particularly between the U.S. and China, may impact the semiconductor supply chain. In 2023, over 30% of South Korea’s chip exports were directed to China and Hong Kong, with a similar percentage exported to the U.S. Should tensions intensify and the U.S. impose further trade restrictions on advanced chips exported to China, it could severely affect Korea’s memory semiconductor exports.
South Korean manufacturers rely on China for certain components and equipment essential for chip production. Disruptions in supply due to geopolitical conflicts could hinder the ability of South Korean companies to procure the necessary tools for chip fabrication.
Additionally, the U.S. has reportedly urged South Korea to limit its exports of equipment and technology used in producing memory chips and advanced logic chips, specifically those more sophisticated than 14-nanometer processes and DRAM memory chips exceeding 18-nanometer technology. South Korean officials are contemplating this request, considering the potential impact on major firms like Samsung and SK Hynix, which have significant operations in China, their largest trading partner.
Furthermore, the Biden administration is contemplating implementing an export control strategy known as the foreign direct product rule aimed at allies that continue to supply chipmaking tools to China. This regulation would prevent the export of any goods manufactured with a specific percentage of U.S. intellectual property components to any country.