South Korea is experiencing a notable productivity surge due to artificial intelligence, but the ongoing tensions between the U.S. and China regarding semiconductor technology could hinder its progress, according to analysts at Bank of America.
The semiconductor sector constitutes 17% of South Korea’s exports, and the country has emerged as a major benefactor of the AI industry, witnessing an over 50% year-on-year increase in exports, as highlighted in a recent report from Bank of America Global Research. Analysts believe that South Korea’s significant investments in AI research and development, along with a rising number of AI-related patents, will enhance its status in AI adoption over the long term.
However, the report notes that escalating geopolitical tensions could impact the semiconductor supply chain, particularly due to the conflict between the U.S. and China, which may present challenges for AI growth in South Korea. While the nation has made efforts to diversify its chip exports away from China, over 30% of its chip exports in 2023 still went to China and Hong Kong. Exports to the U.S. were approximately the same.
If the geopolitical situation worsens and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports, the analysts warned.
Additionally, South Korean semiconductor manufacturers rely on China for various chipmaking components and equipment. Any disruptions in the supply chain due to rising tensions could pose significant challenges for these firms in acquiring necessary tools for production.
Reportedly, the U.S. has urged South Korea to limit exports to China of equipment and technology for producing memory chips and advanced logic chips, particularly those more advanced than 14-nanometers and DRAM memory chips beyond 18-nanometers. South Korean officials are contemplating this request due to the potential impact on major companies like Samsung and SK Hynix, which operate in China, South Korea’s largest trading partner.
Furthermore, the Biden administration is reportedly evaluating the application of an export control known as the foreign direct product rule on allies that continue to supply chipmaking tools and equipment to China. This regulation would prevent exports of goods to any country if they are produced with a specific percentage of U.S. intellectual property components.