According to analysts at Bank of America, South Korea stands out as one of the few economies worldwide experiencing a productivity increase due to artificial intelligence, although rising U.S.-China tensions over semiconductor chips could hinder its growth.
The semiconductor sector is crucial for South Korea, constituting 17% of the nation’s exports. The report highlights that South Korea has emerged as a major beneficiary from the AI boom, with exports surging more than 50% year-over-year. Analysts believe that the country’s significant investments in AI research and development, along with an increasing number of AI-related patents, will enhance its position in AI adoption in the long run.
Nonetheless, the analysts caution that geopolitical tensions may impact the semiconductor supply chain, particularly in light of escalating U.S.-China relations. Although South Korea has begun diversifying its chip exports to other regions, over 30% of its chip exports in 2023 were still directed towards China and Hong Kong, with exports to the U.S. estimated to be similar.
If geopolitical tensions worsen and the U.S. enacts more trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports, according to Bank of America.
South Korean chip manufacturers also rely on China for essential chipmaking components and equipment. Thus, any disruptions in the supply chain due to heightened tensions would complicate the procurement of necessary tools for chip production.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology for memory and advanced logic chips, particularly those exceeding 14-nanometer for logic chips and 18-nanometer for DRAM memory chips. South Korean officials are contemplating this request, considering its potential impact on major local companies like Samsung and SK Hynix, which have significant operations in China.
Additionally, the Biden administration is reportedly weighing the possibility of applying an export control known as the foreign direct product rule against allies who continue supplying chipmaking tools to China. This rule would prohibit the export of any products manufactured with a certain percentage of U.S. intellectual property to specific countries.