According to analysts from Bank of America, South Korea is currently one of the few economies benefiting from an increase in productivity due to artificial intelligence. However, rising tensions between the U.S. and China regarding semiconductor technology may pose challenges to this growth.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as the biggest beneficiary of the AI surge, with exports rising by over 50% year-on-year, as indicated in a Bank of America Global Research report. Analysts suggest that South Korea’s significant investments in AI research and development, along with a rising number of AI-related patents, will strengthen its position in AI adoption over time.
On the other hand, analysts cautioned that geopolitical issues could impact the semiconductor supply chain, particularly the escalating conflicts between the U.S. and China, which could hinder AI development in South Korea. Though South Korea has worked to diversify its chip exports from China to other regions, over 30% of its chip exports in 2023 were still sent to China and Hong Kong, with a similar amount exported to the U.S.
The report warned that if geopolitical tensions heighten and the U.S. implements further trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor sector. Additionally, South Korean chip manufacturers rely on China for specific components and equipment needed for chip production. Disruptions in the supply chain could complicate access to essential tools for these manufacturers.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technology for producing memory chips and advanced logic chips, particularly those more advanced than 14-nanometer and DRAM memory chips larger than 18-nanometer. South Korean officials are contemplating this request due to potential consequences for major domestic companies, including Samsung and SK Hynix, which have significant operations in China, the country’s largest trading partner.
At the same time, the Biden administration is considering applying an export control measure known as the foreign direct product rule on allies that continue selling chipmaking tools to China. This rule would prevent the export of any goods produced with a specified percentage of U.S. intellectual property to any nation.