South Korea is among the few economies globally experiencing a productivity surge due to artificial intelligence, though growing tensions between the U.S. and China regarding semiconductors could pose challenges to this growth, according to analysts from Bank of America.
The semiconductor sector constitutes 17% of South Korea’s exports. Bank of America Global Research highlights that the nation has emerged as the top beneficiary of the AI wave, with an over 50% increase in exports year-on-year. Analysts express optimism for South Korea’s future, citing its significant investments in AI research and development and an increasing number of AI-related patents that will enhance its AI adoption.
Nonetheless, the analysts caution that geopolitical tensions could impact the semiconductor supply chain, particularly due to escalating U.S.-China relations. Despite efforts to diversify chip exports away from China, over 30% of South Korea’s chip exports in 2023 were directed to China and Hong Kong, with a similar rate for exports to the U.S.
The report warns that if geopolitical tensions intensify and the U.S. implements further trade restrictions on exports of advanced or AI-related chips to China, South Korea’s memory semiconductor exports could face significant setbacks.
Additionally, South Korean chip manufacturers rely on China for various components and equipment needed for chip production. Disruptions in the supply chain due to geopolitical tensions could complicate access to the essential tools required by South Korean companies.
The U.S. has reportedly urged South Korea to limit exports of equipment and technology for memory and advanced logic chips to China, which specifically includes logic chips finer than 14-nanometers and DRAM chips exceeding 18-nanometers. South Korean officials are reportedly considering the U.S. request due to potential repercussions for major firms like Samsung and SK Hynix, which have operations in China, its largest trading partner.
Furthermore, the Biden administration is reportedly contemplating an export control measure known as the foreign direct product rule against allies that continue supplying chipmaking tools and equipment to China. This rule would prohibit the export of any product to any nation if it is produced with a certain proportion of U.S. intellectual property.