South Korea stands out as one of the few economies globally experiencing a productivity increase due to artificial intelligence. However, analysts from Bank of America have indicated that escalating tensions between the U.S. and China over semiconductor technology could pose risks to this growth.
According to a report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s total exports. The nation has reportedly emerged as the primary beneficiary of the AI surge, achieving over 50% year-on-year growth in its exports. Analysts project that South Korea’s significant investments in AI research and development and its increasing number of AI-related patents will enhance its capacity for AI integration in the future.
Nonetheless, the analysts caution that “potential geopolitical tensions could affect the semiconductor supply chain,” particularly in light of the rising friction between the United States and China. While South Korea has made efforts to diversify its chip exports, over 30% of its semiconductor exports in 2023 were still directed to China and Hong Kong, with similar figures for exports to the U.S.
Analysts warn that if geopolitical tensions escalate and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could significantly impact South Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for various semiconductor components and production equipment. Disruptions in this supply chain due to rising tensions could hinder these firms’ ability to acquire the necessary tools for chip manufacturing.
Reports suggest that the U.S. has urged South Korea to limit exports to China of equipment and technology used in producing memory chips and advanced logic chips, specifically chips with specifications richer than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean authorities are reportedly considering this U.S. request, mindful of the possible impacts on major domestic corporations such as Samsung and SK Hynix that operate in China, South Korea’s largest trading partner.
In the meantime, the Biden administration is weighing the implementation of an export control measure known as the foreign direct product rule against allies that continue providing chipmaking tools and equipment to China. This regulation would prevent the export of any product to any country if it includes a certain percentage of U.S.-developed intellectual property.