South Korea is among the few global economies experiencing a productivity increase due to artificial intelligence, according to analysts from Bank of America. However, they caution that escalating U.S.-China tensions concerning semiconductor technology may hinder South Korea’s growth in this sector.
The semiconductor industry represents 17% of South Korea’s exports, with the country reportedly benefiting significantly from the AI surge, seeing more than a 50% increase in exports year-over-year. The analysts noted that South Korea’s substantial investments in AI research and development, along with a rise in AI-related patents, could enhance its position in AI adoption in the future.
Nevertheless, the potential for geopolitical conflicts poses risks to the semiconductor supply chain, particularly against the backdrop of rising U.S.-China tensions. Although South Korea has diversified its chip exports beyond China, the nation still relied on China and Hong Kong for over 30% of its semiconductor exports in 2023, with a similar share going to the U.S.
Bank of America analysts warned that if geopolitical tensions worsen and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely impact South Korea’s memory semiconductor exports.
Furthermore, South Korean chip manufacturers rely on China for various chipmaking components and equipment. Disruptions to this supply chain could hinder the ability of South Korean companies to obtain essential tools for chip production.
The U.S. has reportedly requested that South Korea limit its exports of equipment and technology needed for producing advanced memory chips and logic chips, particularly those exceeding 14-nanometer and 18-nanometer technologies. South Korean officials are deliberating this request, considering the potential implications for major firms like Samsung and SK Hynix, which operate extensively in China.
In addition, the Biden administration is contemplating the implementation of an export control known as the foreign direct product rule, which would restrict allied nations from selling chipmaking tools and equipment to China. This regulation would prohibit the export of any products that contain a certain percentage of U.S. intellectual property.