According to analysts from Bank of America, South Korea stands out as one of the few global economies experiencing increased productivity thanks to artificial intelligence. However, ongoing tensions between the U.S. and China regarding semiconductor supplies may pose risks to this growth.
The semiconductor sector is crucial for South Korea, representing 17% of its exports. A report from Bank of America Global Research reveals that the nation has greatly benefited from the AI surge, with exports rising over 50% year-on-year. Analysts believe that South Korea’s substantial investment in AI research and a growing number of related patents will enhance its leadership in AI integration.
Nonetheless, the analysts caution that geopolitical conflicts, particularly between the U.S. and China, could negatively impact the semiconductor supply chain, presenting obstacles to AI development in South Korea. Although the country has made strides in diversifying its chip exports away from China, it still exported over 30% of its chips to China and Hong Kong in 2023, with exports to the U.S. being roughly equivalent.
The report warns that if U.S.-China tensions persist and the U.S. enforces further trade restrictions on advanced or AI-related chip exports to China, it could seriously harm South Korea’s memory semiconductor exports. Additionally, South Korean manufacturers rely on China for essential components and equipment, and any supply chain disruptions could hinder their ability to produce chips.
The U.S. has reportedly requested that South Korea limit its exports of equipment and technology needed for manufacturing advanced memory chips and logic chips, particularly those exceeding 14-nanometers and DRAM exceeding 18-nanometers. South Korean officials are deliberating this request due to potential impacts on major corporations like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
Moreover, the Biden administration is contemplating the implementation of an export control strategy called the foreign direct product rule, which would affect nations that continue to supply chipmaking machinery to China. This rule would prevent the export of any item to any country if it incorporates a certain percentage of U.S. intellectual property.