South Korea stands out as one of the few economies globally experiencing a productivity surge due to artificial intelligence, yet analysts from Bank of America warn that escalating U.S.-China tensions over semiconductor technology may pose risks to this growth.
The semiconductor sector represents 17% of South Korea’s total exports, and according to a report from Bank of America Global Research, the nation has become the primary beneficiary of the AI boom, witnessing an over 50% increase in exports year-over-year. Analysts believe that South Korea’s significant investments in AI research and development, along with a growing number of AI-related patents, will continue to bolster its standing in AI adoption.
Nonetheless, the report highlights that geopolitical challenges, particularly between the U.S. and China, could impact the semiconductor supply chain, which might hinder AI advancement in South Korea. Although the country has been diversifying its chip exports beyond China, over 30% of its semiconductor exports still headed to China and Hong Kong in 2023, with a similar percentage directed to the U.S.
The analysts caution that if geopolitical tensions escalate and the U.S. enforces additional trade restrictions on advanced or AI-related chip exports to China, it could significantly affect South Korea’s memory semiconductor export sector.
Additionally, South Korean chip manufacturers rely on China for various chip-making components and equipment. Disruptions in this supply chain could complicate the ability of South Korean companies to acquire the necessary tools for chip production.
The U.S. has purportedly requested that South Korea limit exports of equipment and technology to China that are used for manufacturing memory chips and advanced logic chips, particularly those more sophisticated than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly considering the impact of this request due to potential consequences for major companies such as Samsung and SK Hynix, which have substantial operations in China.
In parallel, the Biden administration is said to be contemplating the introduction of an export control framework, named the foreign direct product rule, aimed at allies that continue to sell chip-making tools and technology to China. This rule would prevent the export of any item to another country if it is produced using a specified proportion of U.S. intellectual property components.