South Korea is experiencing a productivity increase linked to artificial intelligence, distinguishing itself from many global economies, though analysts from Bank of America caution that rising tensions between the U.S. and China over semiconductor technology may hinder this growth.
According to a report by Bank of America Global Research, the semiconductor sector represents 17% of South Korea’s exports, which have surged by over 50% year-over-year, making the country a significant beneficiary of the AI boom. Analysts believe that South Korea’s substantial investments in AI research and development, along with an increased number of related patents, will enhance its leadership in AI adoption in the long run.
Nonetheless, analysts warned that “potential geopolitical tensions could weigh on the semiconductors supply chain,” particularly amid escalating U.S.-China tensions. Despite South Korea’s efforts to diversify its chip exports beyond China, over 30% of its chip exports in 2023 were still directed to China and Hong Kong, with exports to the U.S. being comparable.
The analysts noted that should tensions worsen and the U.S. enacts further trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports. South Korean chip producers also rely on China for key components and equipment used in chip manufacturing, and any disruption to this supply chain could impede their ability to produce chips effectively.
Additionally, the U.S. has reportedly asked South Korea to limit exports of certain chipmaking equipment and technologies to China, particularly those involving logic chips more advanced than 14-nanometers, and DRAM memory chips exceeding 18-nanometers. South Korean officials are said to be considering this request, mindful of the potential impact on major firms like Samsung and SK Hynix, both of which have substantial operations in China.
In related developments, the Biden administration is reportedly contemplating an export control measure known as the foreign direct product rule, targeting allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of any product to any country if it contains a certain percentage of U.S. intellectual property.