South Korea is one of the few nations experiencing an increase in productivity due to artificial intelligence (AI), though escalating tensions between the U.S. and China regarding semiconductor technology may pose risks to its growth, according to analysts from Bank of America.
The semiconductor sector constitutes 17% of South Korea’s exports, and the nation has been significantly benefiting from the AI surge, with exports surging more than 50% year-over-year, as highlighted in a Bank of America Global Research report. Looking ahead, analysts believe that South Korea’s substantial investment in AI research and development, along with a rising number of AI-related patents, will bolster its position in AI utilization.
However, the report notes that “potential geopolitical tensions could weigh on the semiconductors supply chain,” particularly due to the increasing friction between the U.S. and China, which could challenge South Korea’s AI advancements. Despite the country diversifying its chip exports to regions outside of China, over 30% of its chip exports in 2023 were still directed towards China and Hong Kong, with exports to the U.S. accounting for a similar percentage.
Analysts warn that if geopolitical tensions heighten and the U.S. enforces additional trade restrictions on exports of advanced or AI-related chips to China, it could severely impact South Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for vital components and equipment necessary for chip production. Disruptions in the supply chain caused by rising tensions could complicate access to these essential tools.
Reports indicate that the U.S. has requested South Korea to limit exports of equipment and technology used for producing memory chips and advanced logic chips to China, specifically for logic chips more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly evaluating this request, considering the potential impacts on major firms like Samsung and SK Hynix, which operate within China, Korea’s largest trading partner.
In addition, the Biden administration is said to be contemplating the use of an export control mechanism known as the foreign direct product rule against allies that continue to supply chipmaking tools and equipment to China. This regulation would prohibit the export of any product to any country if it incorporates a certain percentage of U.S. intellectual property.