South Korea is experiencing a unique productivity surge influenced by artificial intelligence, according to analysts from Bank of America. However, increasing tensions between the U.S. and China regarding semiconductor technology could pose challenges to this growth.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as a major beneficiary of the AI boom, with exports rising over 50% year-over-year. The report highlights that South Korea’s substantial investments in AI research and development, coupled with a rising number of AI-related patents, are likely to cement its position in AI adoption.
Despite this positive outlook, analysts caution that geopolitical issues, particularly the strained U.S.-China relations, may impact the semiconductor supply chain. While South Korea has made efforts to diversify its chip exports beyond China, over 30% of its semiconductor exports still went to China and Hong Kong in 2023, a similar proportion was also exported to the U.S.
If the U.S. were to escalate its geopolitical stance and impose further trade restrictions on advanced or AI-related chip exports to China, it could severely disrupt South Korea’s semiconductor sector, particularly its memory chip exports. South Korean manufacturers also rely on China for essential chipmaking components and equipment. Disruption of these supply chains could hinder their ability to produce chips.
Moreover, reports indicate that the U.S. has requested South Korea to limit exports of chipmaking technology and equipment to China, focusing on memory chips and advanced logic chips. South Korean officials are currently evaluating this request due to the potential impact on major domestic corporations, including Samsung and SK Hynix, which have significant operations in China.
Additionally, the Biden administration is reportedly considering implementing an export control measure known as the foreign direct product rule. This rule would prevent the export of any goods to any country if those goods incorporate a specified percentage of U.S. intellectual property.