South Korea is one of the few economies globally experiencing a productivity increase driven by artificial intelligence, but analysts from Bank of America warn that tensions between the U.S. and China regarding semiconductor technology could hinder this growth.
The semiconductor sector represents 17% of South Korea’s exports, and the country has emerged as the primary beneficiary of the AI surge, witnessing a year-over-year export increase of over 50%, according to a report from Bank of America Global Research. The analysts believe that South Korea’s substantial investment in AI research and development, along with a growing portfolio of AI-related patents, will enhance its position in AI adoption over time.
However, potential geopolitical tensions, particularly between the U.S. and China, may impact the semiconductor supply chain, posing risks to South Korea’s AI growth. Despite diversifying its chip exports beyond China to other regions, over 30% of its chip exports in 2023 were still directed to China and Hong Kong. Exports to the U.S. accounted for a similar percentage.
Analysts caution that if U.S.-China tensions escalate and the U.S. enforces additional trade restrictions on advanced or AI-related chip exports to China, it could seriously affect South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment critical to chip production. Any supply chain disruptions due to rising tensions would complicate access to the necessary tools for these manufacturers.
The U.S. has reportedly urged South Korea to limit exports of equipment and technology essential for producing memory chips and advanced logic chips to China, specifically targeting chips built on processes more advanced than 14-nanometers and DRAM memory chips exceeding 18-nanometers. South Korean officials are reportedly considering this request due to potential impacts on major local companies like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
Furthermore, the Biden administration is said to be evaluating the implementation of an export control rule targeting allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of goods produced with a certain percentage of U.S. intellectual property components to any country.