South Korea is experiencing a rare productivity increase attributed to artificial intelligence, but escalating tensions between the U.S. and China regarding semiconductor technology may hinder this growth, according to analysts from Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and the country has emerged as a significant player in the AI industry, with exports soaring over 50% year-over-year. A report from Bank of America Global Research suggests that South Korea’s substantial investments in AI research and a surge in AI-related patents are likely to enhance its position in AI integration over the long term.
Nevertheless, the report cautions that geopolitical conflicts, particularly between the U.S. and China, could impact the semiconductor supply chain and create obstacles for AI development in South Korea. Although the nation has begun to diversify its chip exports away from China to other regions, over 30% of its chip exports in 2023 were directed to China and Hong Kong, with exports to the U.S. at similar levels.
Analysts indicate that if U.S.-China tensions escalate further, particularly with additional trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for various components and equipment necessary for chip production. Disruptions in this supply chain could create challenges for South Korean companies to access essential tools for manufacturing chips.
Reports also indicate that the U.S. has requested South Korea to restrict exports of chip-making equipment and advanced technology to China, targeting logic chips more sophisticated than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are evaluating this request while considering potential impacts on key Korean firms, including Samsung and SK Hynix, which have substantial operations in China, the country’s 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 allies that continue to supply chipmaking tools to China. This regulation would prevent the export of products made with a specified percentage of U.S. intellectual property to any nation.