South Korea is experiencing a rare productivity increase attributed to artificial intelligence, but ongoing tensions between the U.S. and China regarding semiconductor supplies could impede its growth, as noted by analysts from Bank of America.
The semiconductor sector is significant for South Korea, representing 17% of its exports. A report from Bank of America Global Research indicates that the nation has emerged as a key beneficiary of the AI surge, with semiconductor exports rising more than 50% compared to the previous 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 position in AI integration over the long haul.
However, the report also highlights that geopolitical strains, particularly the escalating tension between the U.S. and China, could impact semiconductor supply chains, posing a risk to AI growth in South Korea. Despite South Korea’s efforts to diversify its chip exports outside of China, over 30% of its semiconductor exports in 2023 were still directed to China and Hong Kong, with exports to the U.S. accounting for a similar amount.
Analysts warn that if geopolitical tensions escalate and the U.S. implements additional trade restrictions on the export of advanced or AI-related chips to China, it could significantly damage South Korean memory semiconductor exports.
Moreover, South Korean chip producers rely on China for various chipmaking components and equipment. A disruption in the supply chain caused by rising tensions could complicate access to necessary tools for chip production.
Reports suggest that the U.S. has requested South Korea to limit exports to China of equipment and technology essential for manufacturing memory chips and advanced logic chips, specifically those more sophisticated than 14-nanometer and DRAM memory chips above 18-nanometer. South Korean authorities are reportedly considering this request, mindful of potential impacts on major firms like Samsung and SK Hynix, which have significant operations in China, their largest trading partner.
Simultaneously, the Biden administration is reportedly contemplating the application of an export control measure known as the foreign direct product rule against allies that continue to supply chipmaking tools to China. This rule restricts the export of any good produced with a certain level of U.S. intellectual property components to any country.