South Korea stands out as one of the few economies globally experiencing a surge in productivity attributed to artificial intelligence, yet potential challenges loom due to U.S.-China tensions surrounding semiconductor technology, according to analysts from Bank of America.
The report highlights that the semiconductor industry constitutes 17% of South Korea’s exports, with the nation benefiting significantly from the AI boom, which has seen exports increase by more than 50% year-over-year. Analysts predict that South Korea’s substantial investments in AI research and development, coupled with an increasing number of AI-related patents, will enhance its AI adoption capabilities in the future.
Despite these optimistic projections, the analysts caution that geopolitical tensions could impact the semiconductor supply chain, particularly the escalating friction between the U.S. and China. While South Korea has begun to diversify its chip exports away from China, the report notes that China and Hong Kong represented over 30% of its chip exports in 2023, with exports to the U.S. being similarly substantial.
Should U.S.-China tensions intensify and the U.S. impose further trade restrictions on the export of advanced or AI-related chips to China, Bank of America analysts warn that it could severely impact South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for several components and tools essential for chip production. If geopolitical tensions disrupt this supply chain, it would complicate the ability of South Korean companies to obtain the necessary equipment for semiconductor manufacturing.
Reports indicate that the U.S. has requested South Korea to limit exports to China of technologies and equipment used for producing specific types of chips, specifically logic chips with advanced technology beyond 14-nanometer and DRAM chips exceeding 18-nanometer. South Korean officials are reportedly assessing this request due to potential ramifications for major firms like Samsung and SK Hynix, which have significant operations in China, their largest trading partner.
Meanwhile, the Biden administration is contemplating the implementation of an export control policy, known as the foreign direct product rule, towards allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of goods to any nation if they contain a certain proportion of U.S. intellectual property components.