South Korea is experiencing a notable boost in productivity from artificial intelligence, making it one of the few economies globally to do so, according to analysts at Bank of America. However, the ongoing tensions between the U.S. and China regarding semiconductor technology may pose threats to this growth.
A recent report from Bank of America Global Research highlighted that the semiconductor sector represents 17% of South Korea’s exports. The country has emerged as the largest benefactor of the AI surge, with exports soaring more than 50% compared to the previous year. Analysts believe that South Korea’s substantial investments in AI research and development, along with an increasing number of AI-related patents, will enhance its leadership in AI integration.
Nonetheless, the analysts cautioned that rising geopolitical tensions could impact the semiconductor supply chain, particularly due to the strained U.S.-China relationship, which poses challenges for South Korea’s AI growth. Although South Korea has diversified its chip exports beyond China, over 30% of its chip exports in 2023 were still directed to China and Hong Kong, matching exports to the United States.
The analysts noted that if U.S.-China tensions were to escalate and if the U.S. implemented additional 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 several essential chipmaking components and equipment. Any disruption to this supply chain stemming from geopolitical tensions could hinder South Korean firms’ ability to obtain the necessary tools for chip production.
It has been reported that the U.S. has requested South Korea to limit exports to China of equipment and technology used in the production of memory and advanced logic chips, particularly those exceeding 14-nanometer technology for logic chips and 18-nanometer for DRAM memory chips. South Korean officials are considering this request, taking into account its potential impact on major domestic companies like Samsung and SK Hynix, both of which have significant operations in China.
In addition, the Biden administration is reportedly contemplating the use of the foreign direct product rule as an export control measure against allies who continue supplying chipmaking tools and technology to China. This rule prohibits the export of goods to any nation if they contain a specified percentage of U.S. intellectual property components.