South Korea is experiencing a productivity increase thanks to artificial intelligence, according to analysts from Bank of America, although rising tensions between the U.S. and China regarding semiconductor technology could pose a risk to this growth. The semiconductor sector represents 17% of South Korea’s exports, and the nation has notably benefited from the AI boom, with exports rising more than 50% compared to the previous year.
The report highlights that South Korea’s substantial investments in AI research and development, along with an increasing number of AI-related patents, are expected to enhance its role in AI adoption. Nevertheless, analysts warn that geopolitical conflicts might impact the semiconductor supply chain, particularly due to the ongoing strife between the U.S. and China. Despite diversifying chip exports to other regions, over 30% of South Korea’s chip exports in 2023 still went to China and Hong Kong, with a similar amount directed toward the U.S.
Analysts from Bank of America cautioned that if tensions escalate and the U.S. imposes further trade restrictions on the export of advanced or AI-related chips to China, it could badly affect South Korea’s memory semiconductor exports. South Korean chip manufacturers also rely on China for certain components and equipment needed for chip production, meaning that any disruptions in the supply chain could hinder their production capabilities.
The U.S. has reportedly requested that South Korea limit exports of chipmaking equipment and technology to China, specifically targeting advanced logic chips and DRAM memory chips. South Korean officials are considering this request due to potential consequences for major firms like Samsung and SK Hynix, which operate in China, their biggest trading partner.
Additionally, the Biden administration is looking into implementing an export control policy known as the foreign direct product rule, which would affect allies that continue to supply chipmaking tools and equipment to China. This regulation would prevent the export of any products that contain a significant percentage of U.S. intellectual property components.