According to analysts from Bank of America, South Korea stands out as one of the few economies experiencing a productivity surge due to artificial intelligence (AI). However, rising tensions between the U.S. and China regarding semiconductor technology may pose potential challenges to this growth.
The semiconductor sector plays a crucial role in South Korea’s economy, accounting for 17% of its exports. Bank of America Global Research reports that South Korea has emerged as a significant beneficiary of the AI revolution, with semiconductor exports witnessing a remarkable increase of over 50% year-over-year. Analysts are optimistic that the country’s substantial investments in AI research and development, coupled with a growing portfolio of AI-related patents, will bolster its position in AI innovation and adoption in the long run.
Nevertheless, analysts caution that escalating geopolitical tensions could disrupt the semiconductor supply chain. The ongoing friction between the U.S. and China remains a concerning factor for South Korea’s AI growth. Despite efforts to diversify chip exports beyond China, the report indicates that China and Hong Kong still accounted for over 30% of South Korea’s chip exports in 2023, with exports to the U.S. being approximately equal.
The analysts noted that if tensions worsen and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could seriously impact South Korea’s memory semiconductor export industry. Additionally, South Korean chip manufacturers rely on China for various components and equipment used in chipmaking. Any disruption caused by geopolitical tensions could hinder the ability of South Korean firms to obtain essential tools for production.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technologies related to memory chips and advanced logic chips, particularly those exceeding 14-nanometer and 18-nanometer specifications. South Korean officials are considering this request amid concerns over potential repercussions for major South Korean companies, including Samsung and SK Hynix, which have substantial operations in China.
Meanwhile, the Biden administration is contemplating implementing an export control, known as the foreign direct product rule, on allies that continue to supply chipmaking tools and equipment to China. This regulation would prohibit the export of any products to any country if they incorporate a significant percentage of U.S. intellectual property.