South Korea is among the few economies globally experiencing a productivity increase due to artificial intelligence, although rising tensions between the U.S. and China regarding semiconductor exports may pose risks to its growth, according to analysts from Bank of America.
The semiconductor sector comprises 17% of South Korea’s exports, and the country has emerged as a major beneficiary of the AI boom, with exports soaring over 50% year-over-year, as per a report from Bank of America Global Research. Analysts anticipate that South Korea’s substantial investments in AI research and development, coupled with a growing volume of AI-related patents, will enhance its AI adoption in the future.
However, the report highlights that potential geopolitical conflicts could impact the semiconductor supply chain. The escalating tensions between the U.S. and China could be particularly challenging for South Korea’s AI growth. Although South Korea has started to diversify its chip exports away from China to other regions, in 2023, China and Hong Kong still accounted for over 30% of its semiconductor exports, with exports to the U.S. being approximately equal.
Bank of America analysts cautioned that if geopolitical tensions escalate and the U.S. introduces further trade restrictions on advanced or AI-related chip exports to China, it could significantly harm South Korea’s memory chip exports.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Any disruption in the supply chain due to rising tensions could hinder these companies from obtaining the tools essential for producing chips.
Furthermore, it has been reported that the U.S. has requested South Korea to limit exports to China of the equipment and technology used in manufacturing memory and advanced logic chips, specifically those that surpass 14-nanometer and 18-nanometer technologies. South Korean officials are reportedly considering this request due to potential impacts on major firms like Samsung and SK Hynix, which have significant operations in China, South Korea’s largest trading partner.
In parallel, the Biden administration is contemplating the implementation of an export control known as the foreign direct product rule, targeting allies that continue to provide chipmaking tools and equipment to China. This rule prohibits the export of any goods to a country if those goods are produced using a specified percentage of U.S. intellectual property components.