South Korea is among the few economies globally benefiting from an increase in productivity due to artificial intelligence, although rising tensions between the U.S. and China regarding semiconductor chips pose potential challenges to its growth, analysts from Bank of America have noted.
According to a report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports, making it a significant player in the AI market, with exports rising over 50% compared to the previous year. Analysts emphasized the long-term benefits of South Korea’s substantial investments in AI research and development, alongside a growing number of AI-related patents which may enhance the country’s adoption of AI technology.
However, the report raises concerns that geopolitical issues could impact the semiconductor supply chain. Particularly, the ongoing U.S.-China tensions are seen as potential obstacles to South Korea’s AI growth. Despite efforts to diversify chip exports away from China, the report states that over 30% of South Korea’s chip exports in 2023 were directed to China and Hong Kong, with exports to the U.S. being similar.
The analysts warned that should geopolitical tensions worsen and the U.S. adds further trade restrictions on advanced or AI-related chip exports to China, it could greatly impair South Korea’s memory semiconductor exports.
Additionally, South Korean chipmakers rely on China for essential components and equipment used in chip production. Should tensions disrupt this supply chain, it may complicate the ability of South Korean companies to obtain the necessary tools for chip manufacturing.
Reportedly, the U.S. has requested that South Korea limit exports to China of equipment and technology for the production of memory chips and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are contemplating the U.S. request, considering the potential impact on major domestic companies like Samsung and SK Hynix, which have operations in China, its largest trading partner.
In conjunction with these developments, the Biden administration is reportedly evaluating the application of an export control known as the foreign direct product rule against allies that continue to supply chipmaking tools and equipment to China. This regulation would prevent the export of any goods produced with a certain percentage of U.S. intellectual property components to any country.