South Korea stands out as one of the few economies benefiting from a productivity boost attributed to artificial intelligence (AI), although ongoing tensions between the U.S. and China regarding semiconductors could hinder its growth, according to analysts from Bank of America.
The semiconductor sector constitutes 17% of South Korea’s exports, and the country has been the largest recipient of the AI surge, with exports increasing by more than 50% year-on-year, as noted in a Bank of America Global Research report. Analysts believe that South Korea’s significant investment in AI research and development, coupled with a rising number of AI-related patents, will enhance its standing in AI adoption in the long run.
However, the report warns that “potential geopolitical tensions could impact the semiconductor supply chain,” particularly the escalating friction between the U.S. and China, which could challenge South Korea’s AI expansion. Despite efforts to diversify chip exports away from China, over 30% of South Korea’s chip exports in 2023 were directed to China and Hong Kong, with similar figures for exports to the U.S.
Analysts caution that if U.S.-China tensions intensify and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Should tensions disrupt the supply chain, it could pose significant challenges for South Korean companies in obtaining the necessary tools for chip fabrication.
Reports suggest that the U.S. has requested South Korea to limit exports of equipment and technology related to memory chips and advanced logic chips to China, specifically targeting logic chips that are more advanced than 14 nanometers and DRAM memory chips exceeding 18 nanometers. South Korean officials are reportedly considering this request in light of potential consequences for major South Korean firms like Samsung and SK Hynix, which have significant operations in China.
In parallel, the Biden administration is reportedly deliberating the application of an export control known as the foreign direct product rule on allies that maintain the sale of chipmaking equipment to China. This rule would prohibit the export of any goods to any nation if they contain a specific percentage of U.S. intellectual property components.