South Korea is experiencing a rise in productivity driven by artificial intelligence, although tensions between the U.S. and China regarding semiconductor technology could pose risks to this growth, according to analysts from Bank of America.
The semiconductor sector, which constitutes 17% of South Korea’s exports, has seen a substantial benefit from the AI boom, with exports increasing by over 50% year-on-year. Analysts predict that South Korea’s significant investments in AI research and development, along with a growing number of AI-related patents, will reinforce its standing in AI adoption moving forward.
However, analysts warn that geopolitical disputes, particularly between the U.S. and China, could impact the semiconductor supply chain, challenging AI growth in South Korea. Despite efforts to diversify chip exports away from China, over 30% of South Korea’s semiconductor exports still went to China and Hong Kong in 2023. Exports to the U.S. accounted for a similar percentage.
The report indicates that if geopolitical tensions escalated and the U.S. were to impose more trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Disruptions in the supply chain due to rising tensions could complicate the capability of South Korean companies to procure essential tools for chip manufacturing.
The U.S. government has reportedly requested South Korea to limit exports to China of equipment and technology for memory chips and advanced logic chips, particularly those that exceed 14-nanometer technology and DRAM chips surpassing 18-nanometers. South Korean authorities are deliberating this request, considering the potential impact on major domestic companies like Samsung and SK Hynix, which have significant operations in China.
Furthermore, the Biden administration is contemplating implementing an export control called the foreign direct product rule against allies that continue to sell chipmaking tools and technology to China. This regulation would restrict the export of goods manufactured with a specific percentage of U.S. intellectual property to any country.