South Korea is experiencing a unique increase in productivity attributed to artificial intelligence, contrasting with many other global economies, though analysts from Bank of America warn that tensions between the U.S. and China over semiconductor technology may pose a threat to this growth.
According to a report by Bank of America Global Research, the semiconductor sector represents 17% of South Korea’s total exports, and the country has emerged as a significant beneficiary of the AI surge, tracking over a 50% increase in exports compared to the previous year. Analysts anticipate that South Korea’s robust investment in AI research and development, along with a rise in AI-related patents, will solidify its position in AI utilization in the long term.
Nonetheless, the report cautions that rising geopolitical strife, particularly between the U.S. and China, could disrupt the semiconductor supply chain, potentially hindering AI advancements in South Korea. Despite having diversified its chip exports to various regions, over 30% of these exports in 2023 were directed to China and Hong Kong, with a similar percentage going to the U.S.
Bank of America analysts noted that if geopolitical tensions escalate further and the U.S. enforces stricter trade regulations on advanced or AI-related chip exports to China, it could significantly impact South Korea’s memory chip exports.
Additionally, South Korean chip manufacturers rely on China for several components and tools essential for chip production. Should these tensions affect supply chains, it would complicate the ability of South Korean firms to acquire the necessary equipment for chip manufacturing.
Reports indicate that the U.S. has requested South Korea to restrict exports of equipment and technology used for producing memory chips and advanced logic chips, specifically those more advanced than 14-nanometers and DRAM memory chips exceeding 18-nanometers. South Korean officials are considering this request, mindful of the potential consequences for major corporations like Samsung and SK Hynix that operate in China, South Korea’s largest trading partner.
Furthermore, the Biden administration is reportedly contemplating the implementation of an export control mechanism known as the foreign direct product rule, aimed at allies who persist in supplying chipmaking tools and equipment to China. This rule would prohibit the export of any goods to any nation if they are produced with a specified percentage of U.S. intellectual property components.