South Korea stands out as one of the few economies experiencing a productivity increase due to artificial intelligence, as reported by Bank of America analysts. However, they warn that rising tensions between the U.S. and China regarding semiconductor technology could hinder this growth.
The semiconductor sector is critical for South Korea, representing 17% of its exports. According to a report from Bank of America Global Research, the country has benefited significantly from the AI surge, with exports rising over 50% year-on-year. Analysts believe that South Korea’s substantial investments in AI research and development, coupled with a growing number of AI-related patents, will bolster its position in AI implementation over time.
Despite these positive indicators, analysts expressed concerns that geopolitical strains could disrupt the semiconductor supply chain, particularly due to increasing tensions between the U.S. and China. Although South Korea has been diversifying its chip exports beyond China, the report notes that over 30% of its chip exports in 2023 still went to China and Hong Kong, with a similar percentage heading to the U.S.
Bank of America analysts cautioned that if U.S.-China tensions escalate and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could greatly impact South Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for various components and equipment essential for chip production. Disruption in this supply chain due to rising tensions could severely affect the ability of South Korean companies to procure the necessary tools for semiconductor fabrication.
The U.S. has reportedly requested that South Korea limit its exports of semiconductor production equipment and technology to China, specifically targeting advanced logic chips beyond 14 nanometers and DRAM memory chips exceeding 18 nanometers. South Korean officials are considering this request due to potential impacts on major corporations like Samsung and SK Hynix, which have significant operations in China, the nation’s largest trading partner.
In a related development, the Biden administration is contemplating the application of an export control measure known as the foreign direct product rule on nations that continue to supply chipmaking equipment to China. This rule prohibits the export of any goods to any country if they contain a specified percentage of U.S. intellectual property components.