South Korea stands out as one of the few economies worldwide experiencing a productivity increase fueled by artificial intelligence (AI), although analysts from Bank of America warn that rising tensions between the United States and China regarding semiconductor technology could hinder its growth.
According to a report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports, making it a significant beneficiary of the AI surge, with exports soaring by over 50% year-on-year. Analysts anticipate that South Korea’s substantial investments in AI research and development, alongside a growing volume of AI-related patents, will bolster its position in global AI adoption in the long run.
Nevertheless, the report highlights that potential geopolitical conflicts could endanger the semiconductor supply chain, particularly amid escalating U.S.-China relations, which could pose risks to South Korea’s AI growth. Although South Korea has been diversifying its chip exports beyond China, over 30% of its semiconductor exports still went to China and Hong Kong in 2023, with exports to the U.S. being comparable.
Analysts cautioned that if tensions escalate and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely impact South Korea’s memory chip exports. Additionally, South Korean semiconductor manufacturers rely on China for specific components and equipment, meaning supply chain disruptions could impede their ability to produce chips.
Reports indicate that the U.S. has requested South Korea to limit exports of equipment and technology required for producing advanced memory chips and logic chips to China, specifically targeting chips exceeding 14-nanometer technology and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly deliberating this request, considering potential repercussions for major companies like Samsung and SK Hynix, which have significant operations in China, their largest trading partner.
In tandem, the Biden administration is reportedly contemplating the implementation of an export control known as the foreign direct product rule, aimed at allies that continue to supply chipmaking equipment and tools to China. This regulation would prevent the export of any goods to any nation if they contain a specific percentage of U.S. intellectual property.