South Korea is experiencing a productivity surge attributed to artificial intelligence, making it one of the few economies worldwide to benefit from this trend. However, analysts from Bank of America caution that tensions between the U.S. and China regarding semiconductor technology could hinder this growth.
The semiconductor sector is crucial for South Korea, making up 17% of its total exports. The country has capitalized on the AI boom, with semiconductor exports rising over 50% compared to the previous year, according to a report by Bank of America Global Research. Analysts believe that South Korea’s significant investments in AI R&D and an increasing number of AI patents will bolster its position as a leader in AI adoption in the future.
Despite this optimistic outlook, the analysts highlight that ongoing geopolitical tensions, particularly between the U.S. and China, could disrupt the semiconductor supply chain. Although South Korea has begun to diversify its chip exports beyond China, over 30% of its chip exports were still directed to China and Hong Kong in 2023. Exports to the U.S. were approximately the same.
Should geopolitical tensions escalate and the U.S. enforce stricter trade restrictions on advanced chips and AI-related exports to China, South Korea’s memory chip export market could face serious challenges.
Moreover, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. If tensions impede the supply chain, it would become increasingly difficult for South Korean firms to obtain the tools required for chip manufacturing.
Reports indicate that the U.S. has requested South Korea to limit exports to China of technology and equipment used for fabricating memory and advanced logic chips, particularly those more sophisticated than 14-nanometers and DRAM memory chips above 18-nanometers. South Korean officials are reportedly considering this request due to the potential impact on major firms like Samsung and SK Hynix, which are active in China, its largest trading partner.
Additionally, the Biden administration is contemplating the implementation of the foreign direct product rule, which would restrict the export of goods produced using a certain percentage of U.S. intellectual property to countries that continue to sell chipmaking tools and equipment to China.