South Korea is experiencing a significant boost in productivity attributed to artificial intelligence, according to analysts from Bank of America. However, escalating tensions between the United States and China regarding semiconductor technology might pose challenges to this growth.
The semiconductor sector represents a substantial 17% of South Korea’s total exports, and the country has emerged as a key beneficiary of the AI surge, reporting a year-over-year increase in exports of over 50%. The report suggests that South Korea’s substantial investments in AI research and development, alongside a growing portfolio of AI-related patents, will enhance its standing in the field of AI adoption.
Despite these advancements, the analysts caution that geopolitical tensions may impact the semiconductor supply chain, particularly due to the ongoing friction between the U.S. and China. While South Korea has made efforts to diversify its chip exports beyond China, it’s noted that over 30% of these exports still went to China and Hong Kong in 2023, with a similar proportion directed toward the U.S.
Analysts warned that if U.S.-China tensions escalate further, leading to additional trade restrictions on advanced or AI-related chip exports to China, it could significantly affect South Korea’s memory semiconductor exports. Additionally, South Korean chip manufacturers rely on China for various components and equipment essential for chip production, meaning any disruption could hinder their operations.
Reports indicate that the U.S. has requested South Korea to limit exports to China of certain chipmaking equipment and technologies, specifically targeting those used for producing memory chips and advanced logic chips beyond specified technological thresholds. South Korean authorities are reportedly considering this request, mindful of the potential impacts on major corporations like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
In parallel, the Biden administration is reportedly contemplating implementing an export control measure known as the foreign direct product rule against allies who continue supplying chipmaking tools to China. This regulation would restrict exports if the goods are produced with a certain percentage of U.S. intellectual property.