South Korea is experiencing a notable increase in productivity due to advancements in artificial intelligence, but analysts from Bank of America caution that tensions between the U.S. and China regarding semiconductor issues could impede this growth.
According to a recent report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports. The country has emerged as a primary beneficiary of the AI boom, with exports climbing over 50% year-over-year. Analysts project that South Korea’s substantial investment in AI research and development, alongside a rising number of AI-related patents, will continue to enhance its role in AI adoption.
However, potential geopolitical tensions may impact the semiconductor supply chain, particularly due to escalating conflicts between the U.S. and China. While South Korea has begun to diversify its chip exports to markets outside of China, over 30% of its semiconductor exports in 2023 were still directed towards China and Hong Kong, with exports to the U.S. accounting for a similar percentage.
Bank of America analysts warned that if tensions intensify and the U.S. implements further trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for sourcing components and equipment essential for chip production. Disruption to this supply chain could complicate the ability of South Korean companies to procure the necessary tools for semiconductor manufacturing.
Reports indicate that the U.S. has requested South Korea to limit the export of equipment and technology necessary for producing memory chips and advanced logic chips to China, particularly those exceeding 14-nanometer technology and DRAM memory chips beyond the 18-nanometer standard. South Korean officials are reportedly contemplating this request, considering the potential fallout for major firms such as Samsung and SK Hynix that operate within China, its largest trading partner.
Meanwhile, the Biden administration is also exploring the possibility of employing an export control mechanism known as the foreign direct product rule against allies that continue to sell chipmaking technology to China. This rule restricts the export of goods to any country if they are produced using a significant amount of U.S. intellectual property.