According to analysts from Bank of America, South Korea stands out as one of the few economies benefiting from a productivity increase attributed to artificial intelligence. However, ongoing tensions between the U.S. and China, particularly regarding the semiconductor industry, pose potential challenges to this growth.
The semiconductor sector constitutes 17% of South Korea’s exports, and the nation has emerged as a significant beneficiary of the AI surge, with exports rising over 50% on an annual basis. Analysts predict that South Korea’s substantial investment in AI research and development, coupled with an increasing number of AI-related patents, will enhance its position in AI adoption in the long run.
Despite this optimism, analysts caution that escalating geopolitical tensions could adversely affect the semiconductor supply chain, particularly due to the strained U.S.-China relations. While South Korea has begun to diversify its chip exports beyond China, over 30% of its chip exports in 2023 were directed to China and Hong Kong.
If the U.S. further tightens trade restrictions on advanced chips exported to China, it could severely impact South Korea’s memory semiconductor exports, according to Bank of America analysts. Additionally, South Korean chip manufacturers rely on China for essential components and equipment. Any disruptions in these supply chains could hinder South Korean firms in acquiring the necessary tools for chip production.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technology required for manufacturing advanced chips, including logic chips more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are considering this request, aware of its potential impact on major domestic companies like Samsung and SK Hynix, which have significant operations in China.
Furthermore, the Biden administration is reportedly contemplating the implementation of an export control known as the foreign direct product rule for allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of any product to any nation if it is produced with a specific percentage of U.S. intellectual property components.