South Korea stands out as one of the few countries experiencing a productivity increase linked to artificial intelligence, although rising tensions between the United States and China regarding semiconductor technology may pose a risk to its growth, according to analysts at Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and a recent report from Bank of America Global Research indicates that the country has benefitted significantly from the AI surge, with exports rising by over 50% year-over-year. In the long run, analysts predict that South Korea’s substantial investments in AI research and development, coupled with a rising number of AI-related patents, will enhance its standing in AI application.
However, the analysts caution that potential geopolitical conflicts may impact the semiconductor supply chain, particularly the escalating U.S.-China tensions, which could impede AI advancement in South Korea. While the nation has started to diversify its chip exports beyond China, over 30% of its chip exports still went to China and Hong Kong in 2023, as per the report. Exports to the U.S. were approximately on par.
Bank of America analysts warn that if U.S.-China tensions increase and the U.S. enforces additional trade restrictions on high-tech or AI-related chip exports to China, it could significantly affect South Korea’s memory semiconductor exports.
Furthermore, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Any disruption in the supply chain resulting from these tensions could hinder South Korean companies’ ability to acquire the essential tools for semiconductor fabrication.
The U.S. government has reportedly requested South Korea to limit its exports to China of equipment and technologies used in the production of memory chips and advanced logic chips, specifically those with sub-14-nanometer technology and DRAM memory chips beyond 18-nanometers. South Korean officials are reportedly considering this request, considering the potential impact on major firms such as Samsung and SK Hynix, both of which operate in China, South Korea’s largest trading partner.
Additionally, the Biden administration is said to be exploring the use of an export control known as the foreign direct product rule on allies that continue to provide chipmaking tools and equipment to China. This regulation restricts the export of any product to any country if it is manufactured using a certain percentage of U.S. intellectual property.