South Korea is experiencing a notable productivity surge attributed to artificial intelligence, according to analysts from Bank of America. However, ongoing tensions between the U.S. and China concerning semiconductor technology could pose challenges to the country’s growth.
The semiconductor sector is crucial to South Korea, accounting for 17% of its exports. A recent report from Bank of America Global Research indicates that South Korea has benefited significantly from the AI boom, with exports seeing over a 50% increase compared to the previous year. Analysts project that the nation’s substantial investment in AI research and development, along with an increasing number of AI-related patents, is likely to enhance its standing in AI adoption over time.
Nonetheless, the report warns that geopolitical dynamics, especially heightened tensions between the U.S. and China, could impact the semiconductor supply chain negatively. While South Korea has made efforts to diversify its chip exports to regions beyond China, over 30% of these exports were still directed to China and Hong Kong in 2023. Exports to the United States were approximately equal.
Should the geopolitical climate deteriorate further and the U.S. impose stricter trade restrictions on advanced or AI-related semiconductor exports to China, it could severely affect South Korea’s memory chip export sector, as noted by Bank of America analysts.
Additionally, South Korean semiconductor manufacturers rely on China for several chipmaking components and equipment. Disruption in the supply chain due to geopolitical tensions would complicate the acquisition of necessary production tools.
The U.S. has reportedly requested that South Korea limit exports to China regarding equipment and technology essential for manufacturing memory chips and advanced logic chips, particularly those exceeding 14-nanometer in technology and DRAM memory chips over 18-nanometer. South Korean officials are evaluating this request amid concerns about potential repercussions for major corporations like Samsung and SK Hynix, which have operations in China, the country’s largest trading partner.
In the meantime, the Biden administration is considering implementing an export control mechanism known as the foreign direct product rule, targeting allies that continue to supply chipmaking tools and equipment to China. This regulation would prevent the export of any product made with a specified percentage of U.S. intellectual property to any nation.