South Korea stands out as one of the few economies worldwide experiencing a productivity increase from artificial intelligence, although it faces potential setbacks due to U.S.-China tensions concerning semiconductors, according to analysts from Bank of America.
The semiconductor sector plays a crucial role in South Korea’s economy, making up 17% of its exports. The nation has emerged as a significant beneficiary of the AI surge, with semiconductor exports rising over 50% year-on-year, as highlighted in a report from Bank of America Global Research. Analysts express optimism that South Korea’s substantial investments in AI research and development, along with a growing portfolio of AI-related patents, will enhance its standing in AI utilization.
However, the report warns that geopolitical conflicts, particularly between the U.S. and China, could negatively impact the semi-conductor supply chain and, consequently, hamper AI advancements in South Korea. Although the country has begun to diversify its chip exports beyond China, over 30% of its semiconductor exports in 2023 were directed to China and Hong Kong, with a similar proportion exported to the U.S.
Bank of America analysts emphasize that if geopolitical tensions escalate and the U.S. imposes stricter trade restrictions on the export of advanced or AI-related chips to China, it could severely affect South Korean memory chip exports.
Additionally, South Korean semiconductor manufacturers rely on China for crucial chipmaking components and equipment. Disruptions in the supply chain caused by escalating tensions could hinder these manufacturers’ access to necessary production tools.
Reports indicate that the U.S. has requested South Korea to limit exports of semiconductor manufacturing equipment and technology to China, focusing particularly on logic chips more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer specifications. South Korean officials are assessing this request due to the potential impact on major domestic companies like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
In a related note, the Biden administration is reportedly contemplating implementing an export control measure known as the foreign direct product rule, aimed at allies that continue to supply chipmaking tools and equipment to China. This regulation would prohibit the export of any product to any country if it is manufactured using a specified percentage of U.S. intellectual property components.