South Korea stands out as one of the few economies globally experiencing a productivity surge attributed to artificial intelligence. However, analysts from Bank of America warn that escalating tensions between the U.S. and China over semiconductor issues may jeopardize this growth.
The semiconductor sector comprises 17% of South Korea’s exports, and the country has reportedly been the leading beneficiary of the AI revolution, with exports rising more than 50% year-over-year, according to a report from Bank of America Global Research. Analysts project that substantial investment in AI research and development, along with a growing number of AI-related patents, will further enhance South Korea’s position in AI utilization over the long haul.
Nevertheless, concerns about geopolitical tensions may impact the semiconductor supply chain. Analysts indicated that the ongoing U.S.-China tensions could pose a significant risk to AI expansion in South Korea. Despite efforts to diversify chip exports away from China, the report highlights that over 30% of South Korea’s chip exports in 2023 were to China and Hong Kong, with exports to the U.S. at similar levels.
The analysts noted, “If geopolitical tensions escalate and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could profoundly affect Korea’s memory semiconductor exports.”
Additionally, South Korean chip manufacturers rely on China for essential components and equipment used in chip production. Disruptions to this supply chain due to rising tensions could complicate access to necessary manufacturing tools for South Korean companies.
Reports indicate that the U.S. has requested South Korea to limit exports of technology and equipment to China that are used in the production of memory and advanced logic chips, particularly those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer specifications. South Korean officials are reportedly contemplating the U.S. request, considering potential consequences for major firms like Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
In a related development, the Biden administration is reportedly evaluating the implementation of an export control mechanism known as the foreign direct product rule against allies that continue providing chipmaking tools and equipment to China. This rule would prohibit exporting any product to any nation if it incorporates a specified percentage of American intellectual property.