South Korea stands out as one of the few economies worldwide experiencing a productivity surge attributed to artificial intelligence, although increasing tensions between the U.S. and China regarding semiconductor technology could pose risks to this growth, according to analysts at Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as the foremost benefactor of the AI boom, with exports rising by over 50% year-on-year, as reported by Bank of America Global Research. Analysts believe that South Korea’s substantial investments in AI research and development, alongside an increasing volume of AI-related patents, will enhance its standing in AI usage in the long run.
However, experts warned that potential geopolitical conflicts might influence the semiconductor supply chain negatively, particularly in light of escalating U.S.-China tensions, which could threaten AI’s expansion in South Korea. While the country has taken measures to diversify its chip exports away from China towards other regions, China and Hong Kong accounted for over 30% of South Korea’s chip exports in 2023, with exports to the U.S. being roughly equal.
Bank of America analysts stated, “If geopolitical tensions intensify and the U.S. implements further trade restrictions on advanced or AI-related chip exports to China, it could considerably impair Korea’s memory semiconductor exports.”
Moreover, South Korean chip manufacturers rely on China for various components and tools essential for chip production. If these geopolitical tensions disrupt the supply chain, it could complicate the procurement of necessary production tools for South Korean firms.
U.S. officials have reportedly requested that South Korea limit exports to China of equipment and technology required for manufacturing memory chips and advanced logic chips, particularly those exceeding 14-nanometers in logic processing and 18-nanometers in DRAM memory. South Korean authorities are reportedly contemplating this request due to the potential impacts on major corporations like Samsung and SK Hynix, which have significant operations in China, the nation’s largest trading partner.
In addition, the Biden administration is said to be evaluating the application of an export control regulation called the foreign direct product rule on allies that continue supplying chipmaking tools and equipment to China. This rule prevents the export of any item to a country if it incorporates a specified percentage of U.S. intellectual property components.