South Korea is experiencing a productivity increase attributed to artificial intelligence, distinguishing itself as one of the few economies worldwide benefiting from this trend. However, analysts at Bank of America caution that rising tensions between the U.S. and China regarding semiconductor technology could pose challenges for South Korea’s growth.
The semiconductor sector is crucial for South Korea, representing 17% of its exports. A recent report from Bank of America Global Research highlights that South Korea has emerged as a major benefactor from the artificial intelligence boom, enjoying over a 50% increase in exports year-on-year. Analysts remain optimistic about the country’s long-term prospects, citing significant investments in AI research and development, along with an expanding portfolio of AI-related patents, which should bolster its standing in AI utilization.
On the other hand, the report warns that geopolitical tensions may impact the semiconductor supply chain, particularly the escalating discord between the U.S. and China. Despite efforts to diversify chip exports away from China, over 30% of South Korea’s chip exports still went to China and Hong Kong in 2023, with a similar proportion destined for the U.S.
Analysts have expressed concerns that if U.S.-China tensions intensify and the United States imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s semiconductor exports, particularly in the memory segment.
Additionally, South Korean chip manufacturers rely on China for essential components and equipment used in chip production. Disruptions in the supply chain due to heightened tensions could hinder these firms from acquiring the necessary tools for chip manufacturing.
Reports indicate that the U.S. has requested South Korea to limit exports of equipment and technologies utilized in the production of memory chips and advanced logic chips to China, specifically targeting logic chips that are more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are contemplating the implications of this request, particularly concerning major corporations like Samsung and SK Hynix, which have substantial operations in China, their largest trading partner.
In tandem, the Biden administration is reportedly evaluating the implementation of an export control known as the foreign direct product rule, aimed at allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of any goods manufactured with a significant portion of U.S. intellectual property components to any country.