South Korea stands out as one of the few economies globally experiencing a productivity increase attributed to artificial intelligence, although analysts from Bank of America warn that escalating U.S.-China tensions over semiconductor technology could pose a risk to this growth.
According to a report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports. The nation has emerged as the biggest beneficiary of the AI surge, with exports increasing by over 50% year-on-year. Analysts believe that South Korea’s significant investments in AI research and development, along with a rising number of AI-related patents, will enhance its capacity for AI implementation in the long run.
However, the analysts caution that potential geopolitical conflicts could adversely affect the semiconductor supply chain, particularly due to the ongoing friction between the U.S. and China, which could challenge the development of AI in South Korea. Despite the country diversifying its chip exports beyond China to other regions, China and Hong Kong still accounted for over 30% of South Korea’s chip exports in 2023, with exports to the U.S. being similarly significant.
The analysts noted, “If geopolitical tensions worsen and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely impact Korea’s memory semiconductor exports.”
Additionally, South Korean chip producers rely on China for essential components and equipment necessary for chip manufacturing. Disruptions in the supply chain due to geopolitical issues may hinder the ability of South Korean companies to acquire these crucial tools.
Reports indicate that the U.S. has requested South Korea to limit exports to China of technologies and equipment used in the production of memory and advanced logic chips, specifically for chips more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly considering this request due to potential impacts on major South Korean companies like Samsung and SK Hynix, both of which operate in China, its largest trading partner.
Moreover, the Biden administration is said to be contemplating the use of an export control mechanism known as the foreign direct product rule on nations that persist in selling chip manufacturing tools and equipment to China. This rule would prohibit the export of any goods manufactured with a certain percentage of U.S. intellectual property to any country.