Bank of America analysts have reported that South Korea is uniquely positioned to experience a productivity increase from artificial intelligence (AI), although rising U.S.-China tensions regarding semiconductor technology could hinder this growth.
The semiconductor sector represents 17% of South Korea’s exports, and the country has emerged as a leading beneficiary of the AI surge, with exports reportedly increasing by over 50% year-over-year. The report indicates that South Korea’s substantial investment in AI research and development, combined with a rising number of AI-related patents, is likely to bolster its position in AI adoption in the long run.
Nevertheless, analysts caution that “potential geopolitical tensions could weigh on the semiconductors supply chain,” particularly due to escalating conflicts between the U.S. and China, which could pose challenges for AI growth in South Korea. Despite diversifying its chip exports away from China to other regions, China and Hong Kong accounted for more than 30% of South Korea’s chip exports in 2023, with U.S. exports comprising a similar percentage.
The analysts stated that if tensions grow and the U.S. enacts further trade restrictions on advanced or AI-related chip exports to China, it could severely impact memory semiconductor exports from Korea.
Furthermore, South Korean chip manufacturers rely on China for various chipmaking components and equipment. Any disruption in this supply chain could complicate access for South Korean firms to essential tools for chip production.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technology used in the production of memory and advanced logic chips, specifically those more advanced than 14-nanometers and DRAM memory chips beyond 18-nanometers. South Korean officials are reportedly deliberating this request, considering its implications for major South Korean companies such as Samsung and SK Hynix, which have operations in China, its largest trading partner.
Additionally, the Biden administration is reportedly contemplating the use of an export control mechanism known as the foreign direct product rule against allies that continue to supply chipmaking tools to China. This rule would prevent any goods manufactured with a specific percentage of U.S. intellectual property from being exported to any country.