South Korea stands out as one of the few economies globally experiencing a productivity increase driven by artificial intelligence, although Bank of America analysts have noted that escalating U.S.-China tensions over semiconductor chips could hinder this growth.
According to a report from Bank of America Global Research, the semiconductor sector represents 17% of South Korea’s exports, and the country has reaped significant benefits from the AI surge, with exports rising over 50% compared to the previous year. Analysts believe that South Korea’s substantial investments in AI research and development, coupled with a rising number of AI-related patents, will bolster its position in AI implementation moving forward.
Nonetheless, the analysts caution that potential geopolitical conflicts, especially those increasing tensions between the U.S. and China, could adversely impact the semiconductor supply chain, challenging South Korea’s AI growth. Despite diversifying its chip exports away from China to other regions, reports indicate that China and Hong Kong accounted for more than 30% of South Korea’s chip exports in 2023, with exports to the U.S. being roughly the same.
Should geopolitical tensions escalate, with the U.S. imposing further trade restrictions on advanced or AI-related chip exports to China, it could significantly weaken South Korea’s memory semiconductor exports, according to Bank of America analysts.
Additionally, South Korean semiconductor manufacturers rely on China for various chipmaking components and equipment. Any disruptions to the supply chain due to tensions could complicate the ability of South Korean companies to obtain the necessary tools for chip production.
Reports suggest that the U.S. has requested South Korea to limit exports to China concerning equipment and technology used in producing memory chips and advanced logic chips, particularly those more advanced than 14-nanometers and DRAM memory chips exceeding 18-nanometers. South Korean authorities are reportedly deliberating this request, considering its potential impact on major firms like Samsung and SK Hynix, which have significant operations in China, its largest trade partner.
In a related development, the Biden administration is reportedly contemplating the application of an export control known as the foreign direct product rule on allies that continue to sell chipmaking tools and equipment to China. This regulation would prohibit the export of any product to any nation if it is manufactured with a specified percentage of U.S. intellectual property components.