South Korea is one of the few economies globally experiencing a productivity boost from artificial intelligence, although escalating U.S.-China tensions over semiconductors may pose risks to its growth, according to analysts from Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and the country has emerged as a significant beneficiary of the AI surge, with exports climbing over 50% year-over-year, details a report from Bank of America Global Research. Analysts believe that South Korea’s ongoing investments in AI research and development, along with an increasing number of AI-related patents, will strengthen its position in AI implementation in the long run.
Nevertheless, analysts caution that rising geopolitical tensions could impact the semiconductor supply chain, particularly due to the ongoing friction between the U.S. and China, which could hinder AI development in South Korea. Despite diversifying its chip exports away from China, the report highlights that over 30% of South Korea’s chip exports were to China and Hong Kong in 2023, with a similar proportion going to the United States.
Bank of America analysts noted that if geopolitical tensions heighten and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could have a detrimental effect on memory semiconductor exports from Korea.
Additionally, South Korean chip manufacturers rely on China for several chipmaking components and equipment. Consequently, any supply chain disruptions caused by rising tensions could complicate the ability of South Korean companies to obtain the necessary tools for chip production.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technology used in manufacturing memory chips and advanced logic chips, particularly those exceeding 14-nanometer and 18-nanometer thresholds. South Korean officials are considering this request, bearing in mind the potential impacts on major firms like Samsung and SK Hynix, which have significant operations in China—its largest trading partner.
In parallel, the Biden administration is contemplating the implementation of an export control measure known as the foreign direct product rule against allies who continue supplying chipmaking tools to China. This regulation would prevent the export of any goods to a country if they are produced using a certain percentage of U.S. intellectual property.