South Korea is among the few economies benefiting from a productivity increase driven by artificial intelligence, although tensions between the U.S. and China regarding semiconductor chips pose potential risks to its growth, according to analysts at Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and the country has reportedly been a major beneficiary of the AI boom, with exports soaring by over 50% year-over-year, as indicated in a report from Bank of America Global Research. Analysts believe that South Korea’s substantial investment in AI research and development, along with an increasing number of AI-related patents, will enhance its position in AI adoption over the long term.
However, the report warns that escalating geopolitical tensions could impact the semiconductor supply chain, particularly due to the ongoing conflicts between the U.S. and China. Although South Korea has taken steps to diversify its chip exports beyond China, the report highlights that China and Hong Kong accounted for over 30% of its chip exports in 2023, with exports to the U.S. being roughly equal.
The analysts noted that if geopolitical tensions intensify and the U.S. imposes further trade restrictions on exports of advanced or AI-related chips to China, it could significantly affect South Korea’s memory chip exports.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment needed in chip production. Disruptions in the supply chain due to rising tensions could hinder the ability of South Korean companies to acquire the necessary tools for chip manufacturing.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology essential for producing memory chips and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly considering the U.S. request, keeping in mind the potential consequences for major companies like Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
Meanwhile, the Biden administration is contemplating the use of an export control known as the foreign direct product rule on allies that continue to sell chipmaking tools and equipment to China. This rule restricts the export of any goods to any country if they are produced with a certain percentage of U.S. intellectual property components.