South Korea stands out as one of the few countries experiencing a surge in productivity driven by artificial intelligence, according to analysts at Bank of America. However, they caution that escalating U.S.-China tensions regarding semiconductor technology could hinder South Korea’s growth.
The semiconductor sector constitutes 17% of South Korea’s exports, and the nation has significantly benefited from the AI boom, with exports soaring over 50% year-over-year, as noted in a Bank of America Global Research report. Long-term, analysts anticipate that South Korea’s substantial investments in AI research and development, alongside an increase in AI-related patents, will bolster its status in AI adoption.
Nonetheless, experts warn that geopolitical strife could negatively impact the semiconductor supply chain, particularly due to increasing tensions between the U.S. and China. Despite South Korea diversifying its chip exports beyond China, over 30% of its chip exports in 2023 were still directed toward China and Hong Kong, with similar figures for exports to the U.S.
If geopolitical tensions worsen and the U.S. enforces further trade restrictions on the export of advanced or AI-related chips to China, it could have a detrimental effect on South Korea’s memory semiconductor exports, according to Bank of America analysts.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Disruptions in the supply chain due to tensions may complicate access to these crucial tools for South Korean companies.
Reports indicate that the U.S. has requested South Korea to limit its exports to China of equipment and technology used in the production of memory chips and advanced logic chips, specifically those that exceed 14-nanometer and 18-nanometer standards. South Korea is reportedly deliberating this request, considering the possible implications for major firms like Samsung and SK Hynix, which have operations in China—its largest trading partner.
Meanwhile, the Biden administration is contemplating the implementation of the foreign direct product rule on allied nations that continue to supply chipmaking tools and equipment to China. This rule would prohibit the export of goods to any country if they are produced with a specific proportion of U.S. intellectual property.