According to analysts from Bank of America, South Korea is experiencing a productivity increase thanks to artificial intelligence, setting it apart from many other global economies. However, tensions between the U.S. and China regarding the semiconductor industry could pose challenges to the nation’s growth.
The semiconductor sector constitutes 17% of South Korea’s exports, and the nation has reportedly been the largest beneficiary of the AI surge, with exports rising over 50% year-over-year, as outlined in a Bank of America Global Research report. Analysts anticipate that South Korea’s significant investment in AI research and development, coupled with an increasing number of AI-related patents, will bolster its role in AI implementation long-term.
However, the analysts also warned that geopolitical tensions, particularly between the U.S. and China, could impact the semiconductor supply chain, posing a risk to AI’s expansion in South Korea. Despite the country’s efforts to diversify its chip exports away from China, data shows that over 30% of its chip exports in 2023 were directed to China and Hong Kong, with exports to the U.S. being roughly equivalent.
The report emphasizes that if U.S. geopolitical tensions escalate and the U.S. imposes additional restrictions on exports of advanced or AI-related chips to China, it could severely affect South Korea’s memory semiconductor exports.
South Korean chip manufacturers rely on China for certain components and equipment, and any disruption in the supply chain due to heightened tensions could hinder their ability to produce chips.
Reports indicate that the U.S. has requested South Korea to limit exports of equipment and technology used for manufacturing memory and advanced logic chips to China, specifying chips more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly deliberating over this request due to potential impacts on major companies like Samsung and SK Hynix, which have significant operations in China, their largest trading partner.
In related news, the Biden administration is contemplating the application of an export control measure known as the foreign direct product rule on allies that continue to supply chipmaking tools and equipment to China. This rule prevents the export of any goods to a country if they are produced using a certain percentage of U.S. intellectual property components.