South Korea stands out as one of the few economies experiencing a productivity increase attributed to artificial intelligence, although analysts from Bank of America suggest that U.S.-China tensions regarding semiconductor chips may hinder growth.
The semiconductor sector represents 17% of South Korea’s exports, and according to a report from Bank of America Global Research, the nation has emerged as a primary beneficiary of the AI surge, with exports rising by over 50% year-on-year. Analysts project that South Korea’s significant investment in AI research and development, along with a growing portfolio of AI-related patents, will further enhance its role in AI implementation.
However, there are concerns that geopolitical tensions, particularly between the U.S. and China, could impact the semiconductor supply chain. Despite South Korea’s efforts to diversify its chip exports from China to other regions, more than 30% of its chip exports in 2023 still went to China and Hong Kong, with exports to the U.S. being comparable.
Bank of America analysts warned that escalating geopolitical conflicts leading to additional U.S. trade restrictions on advanced or AI-related chip exports to China could severely affect South Korea’s memory semiconductor exports.
South Korean chip manufacturers also rely on China for numerous chipmaking components and equipment. Consequently, any disruptions in the supply chain due to political tensions could complicate the ability of South Korean companies to secure essential tools for chip production.
Reportedly, the U.S. has requested South Korea to limit exports to China of equipment and technology for producing memory chips and advanced logic chips, specifically those more advanced than 14-nanometer technology and DRAM memory chips beyond 18-nanometer. South Korean officials are considering this request, assessing its potential impact on major local firms such as Samsung and SK Hynix, both of which operate within China, the country’s biggest trading partner.
Additionally, the Biden administration is reportedly contemplating implementing an export control, known as the foreign direct product rule, targeting allies that continue to supply chipmaking tools and equipment to China. This regulation would prohibit the export of goods to any nation if they are manufactured using a certain threshold of U.S. intellectual property.