South Korea is experiencing a notable productivity increase due to artificial intelligence, positioning it uniquely among global economies. However, the ongoing U.S.-China tensions regarding semiconductor technology could pose a significant challenge to its growth, according to analysts at Bank of America.
The semiconductor sector is crucial for South Korea, accounting for 17% of the nation’s exports, and the country has emerged as a primary beneficiary of the AI surge, with exports rising more than 50% year-over-year, as reported by Bank of America Global Research. Analysts believe that South Korea’s substantial investments in AI research and development, along with a rising number of AI-related patents, will bolster its advancement in AI adoption in the future.
Despite these positive indicators, analysts caution that potential geopolitical tensions could impact the semiconductor supply chain, particularly due to the escalating conflict between the U.S. and China. While South Korea has been diversifying its chip exports to other regions, China and Hong Kong accounted for over 30% of the nation’s chip exports in 2023, and exports to the U.S. were similar.
The report highlights that if geopolitical tensions worsen and the U.S. enacts further trade restrictions on the export of advanced or AI-related chips to China, South Korea’s memory semiconductor exports could be significantly affected.
Additionally, South Korean chip manufacturers rely on China for essential chipmaking components and equipment. Should tensions disrupt these supply chains, it could hinder the ability of South Korean companies to access the necessary tools for chip production.
The U.S. is reportedly urging South Korea to restrict its exports to China of equipment and technology used in the production of memory chips and advanced logic chips, particularly those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are considering this request, mindful of potential impacts on major corporations such as Samsung and SK Hynix, which have substantial operations in China—its largest trading partner.
In a related development, the Biden administration is also contemplating the implementation of an export control known as the foreign direct product rule, targeting allies who continue to supply chipmaking tools and equipment to China. This rule would prohibit the export of any goods produced with a specified percentage of U.S. intellectual property.