South Korea stands out as one of the few economies experiencing a productivity increase driven by artificial intelligence, according to analysts from Bank of America. However, they warn that rising tensions between the U.S. and China regarding semiconductor technology may hinder this growth.
The semiconductor industry is crucial to South Korea’s economy, representing 17% of its exports. A report from Bank of America Global Research indicated that the country has benefited immensely from the AI surge, with exports climbing over 50% year-over-year. Analysts anticipate that South Korea’s substantial investment in AI research and development, along with a rise in AI-related patents, will continue to enhance its role in the adoption of AI technologies.
Despite these positive trends, the report highlights concerns about geopolitical tensions impacting the semiconductor supply chain, particularly due to ongoing U.S.-China disputes. In 2023, over 30% of South Korean chip exports went to China and Hong Kong, with a similar percentage directed toward the U.S.
Bank of America analysts note that if U.S.-China tensions escalate and the U.S. imposes further trade restrictions on advanced chips destined for China, it could severely impact Korea’s memory semiconductor exports. Additionally, South Korean chip manufacturers rely on China for certain components and equipment, meaning disruptions in this area could inhibit chip production capabilities.
In response to these concerns, the U.S. government has reportedly urged South Korea to limit exports to China of advanced semiconductor equipment and technologies, specifically targeting logic chips more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are contemplating this request due to potential effects on major Korean firms like Samsung and SK Hynix, which have significant operations in China, their largest trading partner.
Moreover, the Biden administration is considering applying an export control known as the foreign direct product rule on allies that continue to supply chipmaking tools to China. This rule restricts the export of goods manufactured with a specified percentage of U.S. intellectual property.