South Korea is experiencing a notable increase in productivity attributed to artificial intelligence, although rising tensions between the U.S. and China concerning semiconductor technology could hinder its growth, according to analysts at Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as a primary beneficiary of the AI surge, with exports rising by over 50% year-over-year, as highlighted in a report from Bank of America Global Research. Analysts project that South Korea’s substantial investment in AI research and development, along with an increase in AI-related patents, will enhance its standing in AI integration in the long run.
However, the report cautions that potential geopolitical tensions may impact the semiconductor supply chain, particularly the escalating conflicts between the U.S. and China, which could present obstacles to AI growth in South Korea. While the country has made efforts to diversify its chip exports beyond China to other regions, over 30% of its chip exports in 2023 were still directed to China and Hong Kong, with similar figures for exports to the U.S.
The analysts highlighted that should geopolitical tensions intensify, leading the U.S. to impose further trade restrictions on the export of advanced or AI-related chips to China, it could deal a significant blow to South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for various chipmaking components and equipment. Therefore, if geopolitical tensions disrupt supply chains, it could complicate the ability of South Korean firms to acquire the necessary tools for chip production.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology needed for producing memory chips and advanced logic chips, specifically those more sophisticated than 14-nanometers and DRAM memory chips more advanced than 18-nanometers. South Korean officials are reportedly considering this U.S. request due to the potential ramifications for major firms like Samsung and SK Hynix, which have operations in China, its largest trading partner.
In the meantime, the Biden administration is reportedly contemplating the implementation of an export control known as the foreign direct product rule, aimed at allies continuing to export chipmaking tools and equipment to China. This rule would prevent the export of any goods to any nation if they are manufactured using a specified percentage of U.S. intellectual property components.