South Korea is witnessing a notable increase in productivity attributed to artificial intelligence, according to analysts from Bank of America. However, they caution that rising tensions between the United States and China over semiconductor technology could pose risks to this growth.
The semiconductor sector represents 17% of South Korea’s total exports, and the country has emerged as a primary beneficiary of the AI surge, with exports reportedly rising over 50% year-on-year. Analysts project that South Korea’s significant investments in AI research and development, along with a rising number of AI-related patents, will enhance its position in the realm of AI adoption in the long run.
Nevertheless, the report highlights concerns that geopolitical tensions, particularly between the U.S. and China, could impact the semiconductor supply chain, presenting challenges for AI growth in South Korea. Although South Korea has begun diversifying its chip exports away from China toward other regions, reports indicate that China and Hong Kong accounted for over 30% of the country’s chip exports in 2023, with exports to the U.S. being comparable.
According to the analysts, if geopolitical conflicts were to escalate and the U.S. imposed stricter trade measures on the export of advanced or AI-related chips to China, it could severely damage South Korea’s memory semiconductor exports.
Furthermore, South Korean chip manufacturers require some components and equipment from China for chip production. Disruptions in the supply chain due to increased tensions could hinder access to the essential tools needed for chip manufacturing.
In related developments, the U.S. has reportedly urged South Korea to limit exports of equipment and technology necessary for producing advanced memory chips and logic chips to China. South Korean officials are currently evaluating this request, considering the potential impacts on major South Korean companies, including Samsung and SK Hynix, which have significant operations in China, the country’s largest trading partner.
Additionally, the Biden administration is contemplating using an export control mechanism known as the foreign direct product rule to target allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of any goods to any nation if they are produced using a specified percentage of U.S. intellectual property components.