South Korea stands out as one of the few economies experiencing a boost in productivity due to artificial intelligence, according to analysts from Bank of America. However, they caution that rising tensions between the U.S. and China regarding semiconductor technology may pose challenges to this growth.
The semiconductor sector represents 17% of South Korea’s exports, and the country has emerged as a significant beneficiary of the AI surge, with exports increasing by over 50% year-over-year, the report from Bank of America Global Research highlights. Analysts believe that South Korea’s considerable investment in AI research and development, alongside a growing number of AI-related patents, will enhance its position in AI adoption in the long run.
Despite this positive outlook, potential geopolitical tensions could disrupt the supply chains for semiconductors, particularly in light of the escalating U.S.-China conflict. Although South Korea has diversified its chip exports to other regions, in 2023, over 30% of its chip exports were still directed to China and Hong Kong. Exports to the U.S. accounted for a similar percentage.
Analysts warned that if U.S. geopolitical tensions escalate and additional trade restrictions on advanced or AI-related chips are imposed on China, it could significantly impact South Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for key components and equipment needed for chip production. Any disruptions to this supply chain due to rising tensions could hinder South Korean firms’ ability to acquire essential production tools.
Reports indicate that the U.S. has urged South Korea to limit exports of chipmaking technology and equipment to China, especially concerning memory chips and advanced logic chips, including those more advanced than 14 nanometers and DRAM memory chips exceeding 18 nanometers. South Korean officials are reportedly considering this request, weighing the potential impacts on major domestic companies like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
Additionally, the Biden administration is reportedly contemplating implementing an export control rule applying to allies that continue to supply chipmaking tools to China. This rule would restrict the export of any goods to any nation if they contain a certain percentage of U.S. intellectual property components.