Analysts from Bank of America have reported that South Korea is one of the few economies benefitting from an increase in productivity due to artificial intelligence. However, they caution that escalating tensions between the U.S. and China regarding the semiconductor industry could hinder this growth.
The semiconductor sector represents 17% of South Korea’s total exports, and the country has emerged as a significant beneficiary from the AI boom, with exports surging over 50% year-over-year. The report highlighted that South Korea’s substantial investments in AI research and development, along with a rise in AI-related patents, are likely to enhance its position in the adoption of this technology.
Despite these positive indicators, analysts warn that potential geopolitical conflicts may impact the semiconductor supply chain. The ongoing tensions between the U.S. and China are particularly concerning, as over 30% of South Korea’s chip exports in 2023 were directed towards China and Hong Kong, with exports to the U.S. being similar.
Should U.S.-China relations worsen and further trade restrictions be placed on advanced or AI-related chips for China, South Korea’s memory semiconductor exports could suffer significantly, according to the analysts.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Disruptions in the supply chain due to geopolitical 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 critical for producing memory and advanced logic chips to China. South Korean officials are reportedly considering the implications of complying with the U.S. request, especially in light of the potential impact on major companies like Samsung and SK Hynix, which have substantial operations in China, its largest trading partner.
Furthermore, the Biden administration is contemplating the implementation of an export control measure, known as the foreign direct product rule, for allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of goods made with a certain percentage of U.S. intellectual property to any country.