South Korea stands out as one of the few economies experiencing a productivity surge attributed to artificial intelligence, although escalating U.S.-China tensions regarding semiconductor chips could pose challenges to its growth, according to analysts from Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and it has been a significant recipient of the AI-related economic boom, with exports increasing by over 50% year-over-year, as indicated in a recent Global Research report from Bank of America. Analysts project that South Korea’s substantial investments in AI research and development, along with a rising number of AI-focused patents, will enhance its position in AI integration in the long run.
However, analysts caution that “potential geopolitical tensions could impact the semiconductor supply chain,” particularly the ongoing strain between the U.S. and China, which may hinder South Korea’s AI advancement. Although South Korea has diversified its chip exports from China to other regional markets, both China and Hong Kong accounted for over 30% of its chip exports in 2023, with exports to the U.S. being roughly equivalent.
The report emphasized that if geopolitical tensions intensify and the U.S. imposes additional trade restrictions on advanced or AI-related chip exports to China, it could substantially jeopardize South Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for certain components and equipment essential for chip production. Any disruptions in these supply chains due to rising tensions could complicate operations for South Korean companies trying to acquire the necessary tools for chip fabrication.
Furthermore, the U.S. has reportedly requested South Korea to limit its exports to China concerning equipment and technology used for manufacturing memory chips and advanced logic chips, specifically those that surpass 14-nanometer technology and DRAM memory chips exceeding 18-nanometers. South Korean officials are reportedly considering this request due to potential consequences for major domestic firms like Samsung and SK Hynix, which have significant operations in China, their largest trading partner.
In addition, the Biden administration is said to be contemplating the implementation of an export control measure, known as the foreign direct product rule, against allies that continue supplying chipmaking tools and equipment to China. This rule would prohibit any goods from being exported to any country if they incorporate a specific percentage of U.S.-owned intellectual property.