According to analysts at Bank of America, South Korea stands out among global economies as one of the few experiencing a productivity increase due to artificial intelligence. However, ongoing tensions between the U.S. and China concerning semiconductor technology could pose risks to South Korea’s economic growth.
The semiconductor sector plays a crucial role in South Korea’s economy, comprising 17% of its exports. A recent Bank of America Global Research report highlights that the nation has significantly benefited from the AI surge, with AI-related exports rising by over 50% year-on-year. The report suggests that South Korea’s substantial investment in AI research and development, along with a growing portfolio of AI patents, is likely to strengthen its position in AI adoption over the long term.
Nonetheless, analysts caution that geopolitical tensions may disrupt the semiconductor supply chain, specifically referencing the escalating U.S.-China conflict. Although South Korea has successfully diversified its chip export markets away from China, over 30% of its chip exports in 2023 were still directed to China and Hong Kong, with a similar proportion exported to the United States.
If tensions worsen, particularly if the U.S. enforces additional trade restrictions on advanced chips sent to China, South Korea’s memory semiconductor exports could face significant challenges. Furthermore, South Korean semiconductor companies are reliant on China for essential chipmaking components and equipment. Any disruptions in this supply chain could hinder their ability to acquire necessary tools for chip production.
Reports indicate that the U.S. has requested South Korea to limit exports of chip manufacturing equipment and technology to China, especially for memory chips above 18-nanometer technology and advanced logic chips exceeding 14-nanometer technology. South Korean officials are reportedly considering this request, weighing its potential impact on major domestic companies like Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
Additionally, the Biden administration is reportedly contemplating the use of an export control mechanism known as the foreign direct product rule on nations that continue to supply chipmaking technology to China. This rule would restrict the export of goods produced with a specific proportion of U.S. intellectual property.