South Korea stands out as one of the few economies experiencing a productivity increase due to artificial intelligence, according to analysts from Bank of America. However, rising tensions between the U.S. and China over semiconductor technology may pose risks to its growth.
The semiconductor sector represents 17% of South Korea’s exports. A report by Bank of America Global Research highlights that the country has been a major beneficiary of the AI surge, with exports climbing over 50% year-over-year. The report suggests that South Korea’s substantial investments in AI research and development, along with a rising number of AI-related patents, will enhance its standing in AI adoption over time.
Nonetheless, analysts caution that escalating geopolitical issues could negatively impact the semiconductor supply chain, particularly due to the increasing friction between the U.S. and China. In 2023, over 30% of South Korea’s chip exports were directed to China and Hong Kong, while exports to the U.S. accounted for a similar proportion.
Bank of America analysts emphasized that if geopolitical tensions worsen and the U.S. enforces further trade restrictions on advanced chips to China, it could severely hurt South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on Chinese suppliers for certain components and equipment. Disruption in the supply chain could hinder their ability to obtain necessary tools for chip production.
Reportedly, the U.S. has urged South Korea to limit exports to China of tools and technology used in the production of memory chips and advanced logic chips, particularly those more sophisticated than 14-nanometers and DRAM chips exceeding 18-nanometers. South Korean officials are considering this request due to potential impacts on major firms such as Samsung and SK Hynix, which have operations in China, its largest trading partner.
Simultaneously, the Biden administration is exploring the use of an export control measure known as the foreign direct product rule against allies that continue to supply chip manufacturing tools to China. This rule restricts the export of any product to any nation if it incorporates a certain percentage of U.S. intellectual property.