South Korea is experiencing a notable productivity increase attributed to artificial intelligence, though potential challenges stemming from U.S.-China tensions over semiconductor issues could impact this growth, according to analysts from Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as a significant beneficiary of the AI boom, with exports rising by over 50% year-over-year, as highlighted in a report from Bank of America Global Research. The analysts anticipate that South Korea’s substantial investment in AI research and development, along with a rising number of AI-related patents, will enhance its role in AI adoption in the long run.
However, the report notes that geopolitical tensions may create challenges for the semiconductor supply chain, particularly due to the increasing friction between the U.S. and China. Although South Korea has diversified its chip exports beyond China, over 30% of its semiconductor exports in 2023 were still directed to China and Hong Kong, with a similar percentage going to the United States.
Bank of America analysts cautioned that escalating geopolitical tensions and possible additional trade restrictions from the U.S. on advanced or AI-related chip exports to China could significantly affect South Korean memory semiconductor exports.
Furthermore, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Supply chain disruptions could hinder these companies’ ability to obtain essential tools for semiconductor manufacturing.
Reports indicate that the U.S. has requested that South Korea limit exports of equipment and technology used for producing memory and advanced logic chips to China, specifically targeting logic chips more advanced than 14-nanometer and DRAM memory chips over 18-nanometer. South Korean officials are reportedly considering this request due to the potential impacts on major domestic firms like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
In parallel, the Biden administration is reportedly contemplating implementing an export control measure known as the foreign direct product rule against allies continuing to supply chipmaking tools and equipment to China. This rule would prevent the export of any goods produced with a specified percentage of U.S. intellectual property components to any country.