According to analysts at Bank of America, South Korea is experiencing a notable productivity increase due to advances in artificial intelligence, although tensions between the U.S. and China regarding semiconductor technology may pose risks to its future growth.
The semiconductor sector is crucial for South Korea, making up 17% of the country’s exports. The Bank of America Global Research report highlights that South Korea has emerged as a major beneficiary of the AI surge, with its exports rising over 50% compared to the previous year. Analysts believe that South Korea’s commitment to investing in AI research and its increasing number of related patents will help solidify its leadership in AI adoption in the long run.
However, the report warns that escalating geopolitical tensions, particularly between the U.S. and China, could impact the semiconductor supply chain, which is essential for AI growth in South Korea. Although the country has successfully diversified its export markets for chips away from China, over 30% of its chip exports still went to China and Hong Kong in 2023, with a similar proportion going to the U.S.
If geopolitical conflicts escalate and the U.S. enforces stricter trade restrictions on high-tech or AI-related chip exports to China, this could severely affect South Korea’s memory semiconductor exports, according to the research.
Additionally, South Korean semiconductor manufacturers rely on China for certain components and equipment necessary for chip production. Disruptions in supply chains caused by heightened tensions could hinder their ability to obtain these essential tools.
Reports indicate that the U.S. has requested South Korea to limit exports of manufacturing equipment and technology for memory chips and advanced logic chips to China, specifically targeting chips with specifications more advanced than 14-nanometers and DRAM memory chips above 18-nanometers. South Korean officials are reportedly considering the request, recognizing its potential implications for key companies, including Samsung and SK Hynix, which have significant operations in China—its largest trading partner.
In a related development, the Biden administration is contemplating the application of an export control measure known as the foreign direct product rule on allied nations that continue to supply chipmaking tools and equipment to China. This regulation would prohibit the export of any product to any nation if it has been produced using a specified percentage of U.S. intellectual property.