South Korea is experiencing a productivity surge due to artificial intelligence, according to analysts from Bank of America, though tensions between the U.S. and China regarding semiconductor technology may pose a threat to this growth.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as a significant beneficiary of the AI boom, with exports increasing over 50% year-over-year. Analysts predict that South Korea’s substantial investment in AI research and development, along with a rising number of AI-related patents, will enhance its position in AI adoption over time.
However, potential geopolitical conflicts could impact the semiconductor supply chain, particularly the growing friction between the U.S. and China, which might hinder South Korea’s AI growth. Despite diversifying its chip exports beyond China, over 30% of its semiconductor exports in 2023 still went to China and Hong Kong, with a similar percentage accounted for by the U.S.
Analysts cautioned that should U.S.-China tensions escalate, particularly if the U.S. imposes additional trade restrictions on advanced or AI-related chip exports to China, it could severely impact South Korea’s memory semiconductor exports. Additionally, South Korean chip manufacturers rely on China for certain components and equipment, meaning that supply chain disruptions could hinder production capabilities.
The U.S. has reportedly requested that South Korea limit exports of specific equipment and technologies used for producing memory chips and advanced logic chips to China. South Korean officials are contemplating this request due to its potential effects on major firms like Samsung and SK Hynix, which have significant operations in China, the country’s largest trading partner.
Furthermore, the Biden administration is reportedly exploring the application of an export control measure known as the foreign direct product rule on allies that continue selling semiconductor manufacturing tools to China. This regulation prohibits the export of goods to any country if they are produced using a certain percentage of U.S. intellectual property.