South Korea is experiencing a rare boost in productivity driven by artificial intelligence, according to analysts from Bank of America. However, escalating tensions between the U.S. and China over semiconductor technology could pose challenges to this growth.
Bank of America has noted that the semiconductor sector represents 17% of South Korea’s exports, and the country has emerged as a significant beneficiary from the AI boom, with exports increasing over 50% year-over-year. Analysts believe that South Korea’s substantial investments in AI research and development, alongside a rising number of AI-related patents, will enhance its standing in AI adoption in the long run.
Nonetheless, potential geopolitical tensions could impact the semiconductor supply chain. The ongoing conflict between the U.S. and China could particularly challenge South Korea’s AI growth. While the nation has shifted some of its chip exports away from China, more than 30% of its chip exports in 2023 still went to China and Hong Kong, with exports to the U.S. being comparable.
Bank of America analysts cautioned that if tensions escalate and the U.S. introduces further trade restrictions on advanced or AI-related chip exports to China, it could severely damage Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for key components and equipment necessary for chip production. Any disruption in the supply chain due to geopolitical strife could hinder South Korean companies’ ability to obtain the required tools for chip manufacturing.
Reports indicate that the U.S. has urged South Korea to limit exports to China of technology and equipment used for producing memory chips and advanced logic chips, specifically those with a technology node more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly contemplating this request, considering its implications for major domestic firms like Samsung and SK Hynix, which operate in China, South Korea’s largest trading partner.
Simultaneously, the Biden administration is reportedly evaluating the implementation of an export control known as the foreign direct product rule on allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of any goods made with a certain percentage of U.S. intellectual property to any country.