South Korea is emerging as one of the few economies globally benefiting from a productivity increase linked to artificial intelligence, though ongoing tensions between the U.S. and China regarding semiconductor technology could hinder this growth, according to analysts at Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has become a major recipient of the AI-driven boom, with exports rising by over 50% year-over-year, as reported by Bank of America Global Research. Analysts believe that South Korea’s substantial investments in AI research and development, alongside a rising number of AI-related patents, will bolster its standing in the field of AI adoption in the future.
However, the analysts cautioned that “potential geopolitical tensions could impact the semiconductor supply chain,” particularly the escalating issues between the U.S. and China, which present risks for AI growth in South Korea. Despite efforts to diversify chip exports away from China, the nation and Hong Kong accounted for over 30% of South Korea’s chip exports in 2023, with exports to the U.S. being comparable.
The analysts warned that if geopolitical tensions escalate and the U.S. imposes additional trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor export market.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Disruptions in the supply chain due to these tensions could hinder South Korean companies’ ability to acquire the essential tools for chip manufacturing.
Reports indicate that the U.S. has requested South Korea to curb exports of equipment and technology used for manufacturing both memory and advanced logic chips to China, focusing on logic chips more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly contemplating the U.S. request, considering the potential impact on major domestic firms such as Samsung and SK Hynix, which have operations in China, its primary trading partner.
In the meantime, the Biden administration is also reportedly considering implementing an export control measure known as the foreign direct product rule against allies that continue to export chipmaking tools and equipment to China. This rule would prohibit the export of goods to any country that incorporate a certain percentage of U.S. intellectual property in their manufacturing.