South Korea stands out as one of the few countries experiencing a productivity surge attributed to artificial intelligence, according to analysts from Bank of America. However, escalating tensions between the U.S. and China regarding semiconductor technology may pose a significant challenge to its economic progress.
The semiconductor sector comprises 17% of South Korea’s exports, and recent findings indicate that the nation has reaped considerable benefits from the AI surge, with a year-over-year increase in exports surpassing 50%. Long-term projections suggest that South Korea’s substantial investments in AI research and development, alongside a rising number of AI-related patents, will fortify its leadership in AI implementation.
On the flip side, the report warns that “potential geopolitical tensions could weigh on the semiconductor supply chain,” particularly due to intensifying U.S.-China relations, which could hinder AI advancement in South Korea. Despite efforts to diversify exports beyond China, over 30% of South Korea’s semiconductor exports in 2023 were still routed to China and Hong Kong, with a similar volume shipped to the United States.
Analysts from Bank of America cautioned that if geopolitical tensions intensify and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could critically affect South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for several essential components and production tools. Any disruptions in the supply chain due to geopolitical strife could hinder their ability to acquire necessary equipment for semiconductor production.
The U.S. has reportedly requested South Korea to limit exports of equipment and technology used in the production of memory and advanced logic chips to China. South Korean authorities are contemplating this request, considering the potential impact on major companies like Samsung and SK Hynix, which have significant operations in China.
In parallel, the Biden administration is exploring the application of an export control known as the foreign direct product rule against allies that continue to supply chipmaking tools to China. This rule prohibits exporting goods to any nation if they are produced using a certain percentage of U.S. intellectual property.