South Korea is among the few economies globally experiencing a surge in productivity due to artificial intelligence, but growing tensions between the United States and China regarding semiconductor technology could pose a risk to its economic growth, according to analysts from Bank of America.
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The semiconductor sector represents 17% of South Korea’s exports, and a report from Bank of America Global Research highlights that the nation has emerged as a significant beneficiary of the AI surge, with exports increasing by over 50% year-on-year. Analysts predict that South Korea’s substantial investment in AI research and development, coupled with an increasing number of AI-related patents, will bolster its standing in AI integration in the long run.
However, the analysts caution that “potential geopolitical tensions could weigh on the semiconductor supply chain,” particularly due to the ongoing strife between the U.S. and China, which could hinder AI growth in South Korea. Despite the country diversifying its chip exports beyond China, over 30% of its chip exports in 2023 still went to China and Hong Kong, which is similar to the exports directed to the U.S.
The report warns that if geopolitical conflicts escalate and the U.S. enforces stricter trade limitations on advanced or AI-related chip exports to China, this could severely impact South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment used in chip production. Disruptions in the supply chain exacerbated by these tensions could hinder the ability of South Korean companies to obtain essential tools for chip manufacturing.
The United States has reportedly urged South Korea to limit exports to China concerning equipment and technology for manufacturing memory and advanced logic chips, specifically those categorized as more advanced than 14-nanometer logic chips and DRAM memory chips exceeding 18-nanometer. South Korean authorities are considering the U.S. request due to its potential impact on major domestic companies like Samsung and SK Hynix, both of which operate in China, its largest trading partner.
Simultaneously, the Biden administration is contemplating the implementation of an export control known as the foreign direct product rule, targeting allies that continue to supply chipmaking tools and equipment to China. This rule prohibits the export of goods to any country if they incorporate a specific percentage of American intellectual property components in their manufacturing.