South Korea is among the few economies globally experiencing a productivity increase attributed to artificial intelligence (AI), though Bank of America analysts warn that rising tensions between the U.S. and China regarding semiconductor technology could hinder its growth.
According to a report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports. The country has emerged as a major winner in the AI surge, with exports soaring over 50% year-over-year. Analysts predict that South Korea’s substantial investments in AI research and development and an increasing number of AI-related patents will enhance its standing in AI utilization going forward.
However, analysts also indicate that geopolitical tensions, particularly those arising from the U.S.-China relationship, may impact the semiconductor supply chain, potentially stalling AI growth in South Korea. While South Korea has shifted its chip exports to various regions away from China, over 30% of its chip exports in 2023 were still directed to China and Hong Kong, with exports to the U.S. hovering around the same figure.
The report cautions that if geopolitical tensions worsen and the U.S. enforces stricter export limitations on advanced or AI-related chips destined for China, it could substantially jeopardize 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 this supply chain could pose challenges for South Korean companies in obtaining essential manufacturing tools.
The U.S. has requested that South Korea limit exports of advanced chipmaking equipment and technology to China, specifically targeting logic chips more advanced than 14-nanometers and DRAM memory chips exceeding 18-nanometers. South Korean officials are reportedly deliberating the U.S. request, taking into account the potential effects on major domestic firms like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
Simultaneously, the Biden administration is considering implementing an export control mechanism known as the foreign direct product rule to restrict allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of any goods that incorporate a specified percentage of U.S. intellectual property to any nation.