South Korea is emerging as one of the few economies worldwide experiencing a productivity increase attributed to artificial intelligence, although analysts from Bank of America have warned that rising geopolitical tensions between the U.S. and China could impede this growth.
The semiconductor sector represents 17% of South Korea’s exports, and a recent Bank of America Global Research report highlights that the nation has been significantly benefiting from the AI surge, with exports rising by over 50% year-over-year. The analysts believe that South Korea’s substantial investments in AI research and development, coupled with a growing number of AI-related patents, will bolster its position as a leader in AI adoption in the long run.
Nevertheless, potential geopolitical strains could disrupt the semiconductor supply chain, particularly in light of the escalating tensions between the U.S. and China, which pose challenges to South Korea’s AI expansion. Although South Korea has diversified its chip exports beyond China, the report reveals that China and Hong Kong constituted over 30% of its chip exports in 2023, with exports to the U.S. being comparable.
The analysts caution that if geopolitical tensions worsen and the U.S. were to impose further trade restrictions on exports of advanced or AI-related chips to China, it could considerably impact South Korea’s memory semiconductor exports.
Furthermore, South Korean chip manufacturers rely on China for numerous components and equipment essential for chip production. Therefore, any disruptions in the supply chain due to heightened tensions would complicate the procurement of necessary tools for chip manufacturing.
The U.S. government has reportedly urged South Korea to limit exports to China of technology and equipment necessary for producing memory and advanced logic chips, specifically logic chips more advanced than 14-nanometer and DRAM memory chips over 18-nanometer. South Korean officials are reportedly deliberating this request, considering potential consequences for major local firms like Samsung and SK Hynix, which have operations in China—their largest trading partner.
Additionally, the Biden administration is said to be contemplating the implementation of an export control policy known as the foreign direct product rule, aimed at allies that continue supplying chipmaking tools and equipment to China. This rule would prevent the export of goods manufactured with a specified percentage of U.S. intellectual property to any nation.