South Korea is one of the few economies globally experiencing a productivity increase due to artificial intelligence, according to analysts from Bank of America. However, rising tensions between the U.S. and China regarding semiconductor technology could pose challenges to this growth.
The semiconductor sector represents 17% of South Korea’s exports, making it significant to the nation’s economy. A Bank of America Global Research report indicates that South Korea has been a major beneficiary of the AI surge, with exports growing over 50% year-on-year. The analysts predict that South Korea’s substantial investments in AI research and development, along with an increasing number of AI-related patents, will enhance its standing in the adoption of AI technologies.
Nonetheless, the report warns that potential geopolitical conflicts may impact the semiconductor supply chain, particularly amidst escalating U.S.-China tensions. Although South Korea has shifted its chip exports away from China to other regions, over 30% of its semiconductor exports in 2023 were still directed to China and Hong Kong, with exports to the U.S. being comparable.
Bank of America analysts caution that if geopolitical tensions escalate and the U.S. enforces stricter trade restrictions on advanced or AI-related chip exports to China, it could drastically affect 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 from rising tensions could complicate South Korean companies’ access to essential tools for chip manufacturing.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology used to manufacture memory chips and advanced logic chips, particularly those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are deliberating on this request, considering potential repercussions for major domestic firms such as Samsung and SK Hynix, which have operations in China, its largest trading partner.
Furthermore, the Biden administration is reportedly contemplating the implementation of an export control measure known as the foreign direct product rule, targeting allies who continue to supply chipmaking tools and equipment to China. This rule prohibits the export of any goods to any country if they are produced with a defined percentage of U.S. intellectual property components.