South Korea is experiencing one of the few productivity boosts from artificial intelligence globally, according to analysts at Bank of America. However, they caution that ongoing tensions between the U.S. and China regarding semiconductor supplies could challenge this growth.
The semiconductor sector represents 17% of South Korea’s exports, and the country is reportedly the foremost beneficiary of the recent AI surge, with exports increasing by over 50% year-over-year. Bank of America Global Research analysts believe that South Korea’s substantial investments in AI research and development, along with a rising number of AI-related patents, will strengthen its position in AI adoption over time.
Nonetheless, the analysts highlighted that geopolitical tensions could impact the semiconductor supply chain, particularly due to the escalating friction between the U.S. and China. Despite diversifying its chip exports away from China, over 30% of South Korea’s chip exports in 2023 still went to China and Hong Kong, with a similar percentage headed to the U.S.
Analysts warned that if geopolitical tensions escalate and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could significantly affect South Korea’s memory semiconductor exports. Additionally, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Disruptions in the supply chain due to heightened tensions could complicate access to these essential tools.
The U.S. has reportedly requested South Korea to limit exports of equipment and technology used for producing memory chips and advanced logic chips to China, particularly those exceeding 14-nanometer processes and DRAM memory chips over 18-nanometer. South Korean officials are reportedly considering this request, mindful of potential repercussions for major companies like Samsung and SK Hynix, which operate in China, South Korea’s largest trading partner.
Furthermore, the Biden administration is contemplating employing an export control mechanism known as the foreign direct product rule against allies that continue selling chipmaking equipment to China. This regulation would prohibit the export of any goods to any nation if they are produced with a significant percentage of U.S. intellectual property components.