Bank of America analysts have reported that South Korea is among the few economies globally experiencing enhanced productivity from artificial intelligence (AI), though growing tensions between the U.S. and China regarding semiconductors could hinder this progress.
According to a report from Bank of America Global Research, the semiconductor industry constitutes 17% of South Korea’s exports, and the nation has emerged as a primary beneficiary of the AI boom, with exports increasing by more than 50% year over year. Analysts believe that South Korea’s substantial investments in AI research and development, combined with a rising number of AI-related patents, are set to enhance its leadership in AI implementation.
However, potential geopolitical strains could negatively impact the semiconductor supply chain, particularly due to escalating tensions between the U.S. and China, which may pose risks to South Korea’s AI growth. While the country has shifted its chip exports away from China towards other regions, China and Hong Kong still accounted for over 30% of South Korea’s chip exports in 2023, with exports to the U.S. similarly around that figure.
Bank of America analysts have cautioned that if geopolitical tensions worsen and the U.S. enforces further trade restrictions on advanced or AI-related chip exports to China, this could greatly harm South Korea’s memory chip exports.
Additionally, South Korean chip manufacturers rely on China for specific components and equipment necessary for chip production. Disruptions to the supply chain due to rising tensions could complicate South Korean companies’ access to essential tools for chip manufacturing.
Reportedly, the U.S. has requested that South Korea limit exports to China of machinery and technology used in producing memory chips and advanced logic chips, notably those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are considering this request, aware of possible consequences for major national companies like Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
In parallel, the Biden administration is contemplating applying an export control mechanism known as the foreign direct product rule on allies that continue to supply chipmaking tools and equipment to China. This rule prohibits the export of any product to any country if it incorporates a certain percentage of U.S. intellectual property components.