Bank of America analysts have noted that South Korea is experiencing a notable productivity increase from artificial intelligence, setting it apart from many other global economies. However, tensions between the U.S. and China concerning semiconductor technology may pose risks to this growth.
The semiconductor sector constitutes 17% of South Korea’s total exports, and the country has emerged as a major beneficiary from the AI surge, witnessing export growth exceeding 50% year-over-year. Analysts predict that South Korea’s significant investments in AI research and development, along with a rising number of AI-related patents, will enhance its standing in AI integration in the long run.
Despite these positive trends, analysts warned that potential geopolitical conflicts could impact the semiconductor supply chain, particularly amid escalating U.S.-China tensions. In 2023, over 30% of South Korea’s chip exports were directed toward China and Hong Kong. The U.S. accounted for a similar share.
The analysts cautioned that if geopolitical issues worsen and the U.S. enforces additional trade restrictions on advanced chip exports to China, it could severely affect South Korea’s memory semiconductor exports.
Additionally, South Korean chip producers rely on China for certain components and equipment essential for semiconductor manufacturing. Disruption in the supply chain due to geopolitical friction could hinder these firms’ access to necessary production tools.
The U.S. government has reportedly urged South Korea to limit exports to China concerning equipment and technology for producing memory chips and advanced logic chips, particularly those exceeding 14-nanometer logic chips and 18-nanometer DRAM memory chips. South Korean officials are deliberating this request, considering potential repercussions for major South Korean companies like Samsung and SK Hynix, which have significant operations in China, its largest trade partner.
In parallel, the Biden administration is contemplating the implementation of an export control known as the foreign direct product rule. This rule would prevent the export of goods to any country if they contain a certain percentage of U.S. intellectual property components, targeting allies that continue to supply chipmaking tools to China.