South Korea is currently experiencing an increase in productivity due to artificial intelligence, a unique position among global economies, according to analysts at Bank of America. However, escalating tensions between the U.S. and China over semiconductor technology could pose risks to this growth.
The semiconductor sector is crucial to South Korea’s economy, representing 17% of its exports. A Bank of America Global Research report highlights that South Korea has been the primary beneficiary of the AI surge, with exports soaring by more than 50% year-over-year. The report predicts that the country’s substantial investments in AI research and development, alongside a rise in AI-related patents, will further strengthen its AI adoption.
Despite this positive outlook, analysts warn that geopolitical tensions, particularly between the U.S. and China, threaten to disrupt the semiconductor supply chain, which could hinder AI advancements in South Korea. Although the nation has successfully diversified its chip exports beyond China, over 30% of its chip exports still went to China and Hong Kong in 2023, with exports to the U.S. being roughly similar.
The potential for increased geopolitical conflicts could prompt the U.S. to impose stricter trade restrictions on the export of advanced and AI-related semiconductor technology to China, which would significantly impact South Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers are reliant on China for several essential components and equipment for chip production. If global tensions escalate and disrupt supply chains, it could complicate the procurement of necessary tools for producing these chips.
The U.S. has reportedly urged South Korea to limit exports to China concerning equipment and technology required for memory and advanced logic chips. South Korean officials are contemplating this request, considering the possible ramifications for major firms like Samsung and SK Hynix, which have operations in China, the country’s largest trading partner.
Additionally, the Biden administration is considering implementing export controls under a rule that restricts the sale of goods produced with significant U.S. intellectual property components to nations that continue to supply chipmaking equipment to China.