South Korea is experiencing a productivity increase from artificial intelligence, a notable trend among global economies, although tensions between the U.S. and China regarding semiconductors could pose challenges, according to analysts from Bank of America.
The semiconductor sector comprises 17% of South Korea’s exports, and the nation has emerged as a key beneficiary of the AI boom, with a year-over-year export increase exceeding 50%. Analysts project that South Korea’s substantial investments in AI research and development, alongside a rise in AI-related patents, will enhance its position in AI utilization over time.
However, the analysts warned that potential geopolitical tensions could impact the semiconductor supply chain, especially as the U.S. and China relations become increasingly strained. Despite South Korea’s efforts to diversify its chip exports from China to other regions, China and Hong Kong represented more than 30% of its chip exports in 2023, with exports to the U.S. being roughly equal.
Should geopolitical tensions escalate, particularly if the U.S. enforces additional trade restrictions on exports of advanced or AI-related chips to China, it could significantly harm South Korea’s memory semiconductor exports. South Korean chip manufacturers also rely on China for critical components and equipment. Disruptions in this supply chain would complicate the ability of South Korean companies to procure the necessary tools for chip production.
The U.S. has reportedly asked South Korea to limit exports of equipment and technology essential for manufacturing memory chips and advanced logic chips, particularly those surpassing 14-nanometer and 18-nanometer specifications. South Korean authorities are reportedly deliberating this request, considering the potential impacts on major corporations such as Samsung and SK Hynix, both of which have operations in China, South Korea’s largest trading partner.
In related news, the Biden administration is contemplating the implementation of an export control mechanism known as the foreign direct product rule for allies that persist in supplying chipmaking tools to China. This regulation would prevent any goods from being exported if they are produced with a significant proportion of U.S. intellectual property components.