South Korea is currently experiencing a rare boost in productivity driven by artificial intelligence, according to analysts from Bank of America. However, escalating tensions between the U.S. and China regarding semiconductor technology may pose significant challenges to this growth.
The semiconductor sector is a critical part of South Korea’s economy, constituting 17% of its exports. Bank of America Global Research reports that the country has emerged as a major beneficiary of the AI boom, with semiconductor exports surging over 50% year-over-year. Analysts predict that South Korea’s substantial investment in AI research and development, coupled with a rising number of AI-related patents, will enhance its standing in AI implementation over time.
Nonetheless, concerns about geopolitical tensions are looming. The ongoing conflict between the U.S. and China threatens the stability of the semiconductor supply chain, which could hinder South Korea’s AI growth. While Korean semiconductor exports have diversified from China to other regions, China and Hong Kong still accounted for over 30% of these exports in 2023, with exports to the U.S. being similarly significant.
If the geopolitical situation intensifies, and the U.S. enforces stricter trade regulations on advanced or AI-related chip exports to China, it could severely impact South Korea’s memory chip industry. The analysts emphasized that South Korean chipmakers rely on China for certain components and equipment, making disruptions to this supply chain particularly challenging for local manufacturers.
Reports indicate that the Biden administration has requested South Korea to limit exports of equipment and technologies used for memory and advanced logic chips, specifically those exceeding 14-nanometer and 18-nanometer processes, respectively. South Korean officials are considering this request carefully, as it could have repercussions for major companies like Samsung and SK Hynix, both of which have significant operations in China, the nation’s largest trading partner.
Additionally, the Biden administration is contemplating utilizing an export control mechanism known as the foreign direct product rule against allies who continue supplying chipmaking tools and equipment to China. This rule would prohibit the export of any good made with a specific percentage of U.S. intellectual property.