South Korea is uniquely positioned as one of the few countries experiencing a productivity increase linked to artificial intelligence, although tensions between the U.S. and China regarding semiconductor chips could hinder its growth, according to analysts from Bank of America.
The semiconductor sector makes up 17% of South Korea’s exports, with the nation being a major beneficiary of the AI surge; exports have reportedly risen by over 50% year-on-year, as noted in a Bank of America Global Research report. The analysts believe that South Korea’s substantial investment in AI research and development, alongside an uptick in AI-related patents, is likely to enhance its role in AI adoption moving forward.
However, the analysts caution that escalating geopolitical issues could impact the semiconductor supply chain, particularly in light of the escalating U.S.-China tensions, which present potential obstacles to South Korea’s AI growth. Despite diversifying its chip exports to various regions, over 30% of South Korea’s chip exports in 2023 were directed to China and Hong Kong, which is similar to the proportion headed for the U.S.
According to Bank of America analysts, if geopolitical tensions intensify and the U.S. enforces further trade restrictions on exports of advanced or AI-related chips to China, it could severely affect memory semiconductor exports from Korea.
Furthermore, South Korean chip manufacturers rely on China for certain components and equipment essential for chip production. Disruptions in the supply chain due to heightened tensions would complicate South Korean firms’ access to the necessary tools for chip manufacturing.
The United States has reportedly requested that South Korea limit exports to China of equipment and technology used in the production of memory chips and advanced logic chips, specifically those more advanced than 14-nanometers and DRAM chips beyond 18-nanometers. South Korean officials are considering this request due to potential repercussions on significant domestic firms like Samsung and SK Hynix, which operate in China, South Korea’s largest trading partner.
In parallel, the Biden administration is reportedly contemplating applying an export control measure known as the foreign direct product rule on allies that continue to supply chipmaking tools and equipment to China. This rule prohibits the export of any goods to any nation if they contain a certain percentage of U.S. intellectual property.