South Korea is experiencing a notable productivity boost from artificial intelligence, standing out among global economies, although tensions between the U.S. and China regarding semiconductors may pose risks to its growth trajectory, according to analysts from Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as the primary beneficiary of the AI surge, with year-over-year export growth exceeding 50%, as highlighted in a report from Bank of America Global Research. Analysts assert that South Korea’s substantial investments in AI research and development, alongside an increasing number of AI-related patents, will enhance its progress in AI integration over the long term.
However, potential geopolitical conflicts might impact the semiconductor supply chain, particularly due to escalating tensions between the U.S. and China, which could challenge South Korea’s AI advancements. Despite South Korea’s efforts to divert 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 similar figures for exports to the U.S.
Bank of America analysts caution that if geopolitical strains worsen and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely hinder South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. If supply chains are disrupted by these tensions, South Korean companies may struggle to obtain the essential tools for manufacturing chips.
The U.S. has reportedly requested that South Korea restrict exports of equipment and technology for manufacturing memory chips and advanced logic chips to China, particularly for chips more advanced than 14-nanometers and DRAM memory chips exceeding 18-nanometers. South Korean officials are contemplating this request due to the potential impact on major firms like Samsung and SK Hynix, which have operations in China, its largest trading partner.
Furthermore, the Biden administration is considering implementing an export control measure known as the foreign direct product rule on allies that persist in selling chipmaking tools and equipment to China. This rule would prevent the export of any product to any nation if it is manufactured using a specified percentage of U.S. intellectual property.