South Korea remains one of the few countries experiencing a productivity increase attributed to artificial intelligence, though analysts from Bank of America caution that rising U.S.-China tensions regarding semiconductors could hinder its growth.
The semiconductor sector is vital to South Korea, representing 17% of its total exports. According to a report from Bank of America Global Research, the nation has emerged as a significant beneficiary of the AI surge, with exports witnessing over a 50% year-over-year increase. Long-term forecasts suggest that South Korea’s heavy investment in AI research and development, along with a rising number of AI-related patents, will enhance its standing in AI integration.
Despite this positive outlook, analysts warn that geopolitical issues could disrupt the semiconductor supply chain. The ongoing strain between the U.S. and China presents potential obstacles to South Korea’s AI expansion. While the nation has successfully diversified its semiconductor exports away from China towards other regions, reports indicate that over 30% of its chip exports in 2023 were to China and Hong Kong, with exports to the U.S. being similarly significant.
If geopolitical tensions escalate and the U.S. enacts further trade restrictions on the export of advanced or AI-related semiconductors to China, this could severely impact South Korea’s memory chip export market, according to Bank of America analysts.
Furthermore, South Korean chip manufacturers rely on China for various components and equipment necessary for chip production. Any disruption in these supply chains could complicate the ability of South Korean companies to obtain essential manufacturing tools.
Reports indicate that the U.S. has requested South Korea to limit its exports to China of equipment and technology vital for producing memory and advanced logic chips, particularly those exceeding 14-nanometers and DRAM memory chips beyond 18-nanometers. South Korean officials are reportedly deliberating this request, considering the potential implications for major domestic players like Samsung and SK Hynix, both of whom have significant operations in China, South Korea’s largest trade partner.
In the meantime, the Biden administration is exploring the application of an export control known as the foreign direct product rule on allies that continue to supply chipmaking tools and equipment to China. This rule prohibits the export of goods to any country if they are manufactured with a specified percentage of U.S. intellectual property components.