South Korea stands out as one of the few economies benefiting from a productivity increase attributed to artificial intelligence, although rising tensions between the U.S. and China concerning semiconductors may pose risks to its growth, according to analysts from Bank of America.
The semiconductor sector, which constitutes 17% of South Korea’s exports, has allowed the nation to emerge as a major player in the AI surge, with a reported year-over-year increase of over 50% in exports, as noted in a Bank of America Global Research report. Analysts suggest that South Korea’s substantial investments in AI research and development and the growing number of AI-related patents could further enhance its standing in AI utilization.
Nevertheless, they caution that “potential geopolitical tensions could impact the semiconductor supply chain,” particularly with the ongoing discord between the U.S. and China, which could challenge South Korea’s AI expansion. Although South Korea has diversified its chip exports, more than 30% of these still went to China and Hong Kong in 2023, with a similar proportion shipping to the U.S.
Bank of America analysts warned that should geopolitical strains intensify and the U.S. implement further trade restrictions on advanced or AI-related chip exports to China, it could have a detrimental effect on South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Disruptions in the supply chain due to rising tensions could complicate the access to essential tools for manufacturing chips.
Reports indicate that the U.S. has requested South Korea to limit its exports of equipment and technology used for producing memory chips and advanced logic chips to China, particularly those more advanced than 14-nanometer logic chips and 18-nanometer DRAM memory chips. South Korean officials are reportedly considering this request, mindful of the potential effects on major domestic companies like Samsung and SK Hynix, which maintain operations in China, its largest trading partner.
Simultaneously, the Biden administration is reportedly contemplating the implementation of an export control measure known as the foreign direct product rule on allies that continue to sell chipmaking tools and equipment to China. This regulation would prevent the export of any goods to any nation if those goods incorporate a specified percentage of U.S. intellectual property components.