South Korea is among the few nations experiencing a productivity increase due to artificial intelligence, although analysts from Bank of America warn that escalating U.S.-China tensions regarding semiconductors could hinder its growth potential.
The semiconductor sector contributes 17% of South Korea’s total exports, and as per a report from Bank of America Global Research, the nation has reaped significant benefits from the AI surge, with exports soaring by more than 50% year-over-year. Analysts believe that South Korea’s substantial investments in AI research and development, alongside a rising number of related patents, will bolster its standing in AI adoption in the long run.
Despite these opportunities, analysts caution that geopolitical issues may impact the semiconductor supply chain, particularly due to the increasing strain between the U.S. and China. Although South Korea has diversified its chip exports, over 30% of these exports went to China and Hong Kong in 2023, with exports to the U.S. being comparable.
The report highlights that should tensions escalate and the U.S. enact further trade restrictions on advanced or AI-related chip exports to China, it could greatly affect memory semiconductor exports from Korea. Additionally, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Any disruption in this supply chain due to geopolitical tensions would make it more challenging for these firms to obtain the equipment needed for manufacturing.
The U.S. has reportedly urged South Korea to limit exports of equipment and technology to China for producing memory and advanced logic chips. South Korean officials are currently considering this request in light of the possible impacts on major domestic companies such as Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
In parallel, the Biden administration is contemplating the implementation of an export control known as the foreign direct product rule, aimed at countries that continue to provide chipmaking tools and technology to China. This rule restricts the export of any goods to any nation if they contain a certain percentage of U.S. intellectual property.