South Korea stands out as one of the few economies globally experiencing a productivity increase driven by artificial intelligence. However, analysts at Bank of America caution that escalating tensions between the U.S. and China concerning semiconductor technology could hinder this growth.
According to a Bank of America Global Research report, the semiconductor sector comprises 17% of South Korea’s exports, with the nation being a significant beneficiary of the AI surge, reflecting over a 50% year-on-year rise in exports. Analysts express optimism about South Korea’s robust investment in AI research and development and the increasing number of AI-related patents, which they believe will enhance the country’s leadership in AI adoption.
Nonetheless, there are concerns regarding potential geopolitical issues that could impact the semiconductor supply chain, particularly due to rising tensions between the U.S. and China. Despite efforts to diversify chip exports beyond China, the report indicates that over 30% of South Korea’s chip exports in 2023 went to China and Hong Kong, with exports to the U.S. being approximately the same amount.
The analysts warn that should geopolitical strains escalate and if the U.S. imposes further trade restrictions on exports of advanced or AI-related chips to China, it could greatly affect South Korea’s memory semiconductor export market.
Moreover, South Korean chip producers rely on China for various chip manufacturing components and equipment. Disruptions in supply chains due to geopolitical tensions could complicate the acquisition of essential tools required for chip production.
Reports suggest that the U.S. has requested South Korea to limit exports to China of equipment and technology essential for producing memory chips and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean authorities are reportedly assessing the implications of this request, particularly considering the impact on major South Korean companies such as Samsung and SK Hynix, which have significant operations in China, their largest trading partner.
Additionally, the Biden administration is examining the possibility of implementing an export control known as the foreign direct product rule, targeting allies that continue to provide chipmaking tools and equipment to China. This rule effectively prohibits the export of any goods produced with a certain percentage of U.S. intellectual property components to any nation.