South Korea stands out as one of the few nations experiencing a productivity surge attributed to artificial intelligence, although analysts from Bank of America caution that escalating tensions between the U.S. and China regarding semiconductor chips may hinder this growth.
According to a report from Bank of America Global Research, the semiconductor industry represents 17% of South Korea’s exports, and the nation has emerged as a significant beneficiary of the AI surge, with a year-over-year increase in exports exceeding 50%. Analysts are optimistic that South Korea’s substantial investments in AI research and development, along with a rising number of AI-related patents, will bolster its leadership in AI utilization in the future.
Nevertheless, the report highlights that potential geopolitical conflicts could impact the semiconductor supply chain. The ongoing strain between the U.S. and China poses a particular risk to AI advancements in South Korea. Although the country has shifted its chip exports from China to other markets, more than 30% of its chip exports still went to China and Hong Kong in 2023, with a similar proportion headed to the U.S.
Bank of America’s analysts warn that should geopolitical tensions escalate, and the U.S. imposes further trade restrictions on advanced chips and AI-related technology exports to China, it could severely diminish South Korea’s memory chip exports.
South Korean chip manufacturers also rely on China for certain components and equipment crucial for chip production. Any disruption in this supply chain due to rising tensions could complicate access to necessary manufacturing tools for these companies.
Additionally, reports indicate that the U.S. has requested South Korea to limit its exports to China of equipment and technology related to memory chips and advanced logic chips, specifically those exceeding a 14-nanometer threshold for logic chips and an 18-nanometer threshold for DRAM memory chips. South Korean officials are reportedly deliberating this request, given the potential impact on major companies like Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
Furthermore, the Biden administration is contemplating the implementation of an export control measure known as the foreign direct product rule. This regulation would restrict the export of goods to any country if they are produced using a certain percentage of components that incorporate U.S. intellectual property, targeting allies who continue to supply chipmaking tools and equipment to China.