South Korea stands out as one of the few countries experiencing a productivity surge attributed to artificial intelligence, although escalating tensions between the U.S. and China concerning semiconductor technology could hinder its growth, according to analysts from Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as a significant beneficiary of the AI revolution, with its exports growing over 50% year-on-year, as stated in a report from Bank of America Global Research. Analysts suggest that South Korea’s substantial investment in AI research and development, along with an increasing number of AI-related patents, will bolster its position in AI integration in the future.
Nonetheless, the analysts cautioned that “potential geopolitical tensions could weigh on the semiconductors supply chain,” particularly the intensifying discord between the U.S. and China, which may pose a risk to South Korea’s AI expansion. Although South Korea has managed to diversify its chip exports away from China to other areas, over 30% of its chip exports still went to China and Hong Kong in 2023. Exports to the United States were about the same.
The report indicated that if geopolitical tensions escalate and if the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely impact South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment used in chip production. Disruptions in the supply chain due to heightened tensions would complicate the ability of South Korean companies to acquire the necessary tools for chip manufacturing.
The U.S. has reportedly requested South Korea to limit its exports of equipment and technologies that facilitate the production of memory chips and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are said to be deliberating over the U.S. request, considering its potential impact on major domestic enterprises like Samsung and SK Hynix, both of which operate in China—their largest trading partner.
Furthermore, the Biden administration is contemplating the implementation of an export control measure known as the foreign direct product rule against allies who continue to supply chipmaking tools and equipment to China. This rule would prohibit the export of any item made with a certain threshold of U.S. intellectual property to any country.