South Korea stands out as one of the few economies globally experiencing a productivity surge driven by artificial intelligence, although analysts from Bank of America caution that escalating U.S.-China tensions regarding semiconductor chips may hinder this growth.
According to a report from Bank of America Global Research, the semiconductor industry represents 17% of South Korea’s exports, making the country a significant beneficiary of the AI boom with exports soaring over 50% year-over-year. Analysts anticipate that South Korea’s substantial investment in AI research and development, alongside an increasing number of AI-related patents, will enhance its position in AI adoption over time.
However, analysts also warn that geopolitical issues could negatively impact the semiconductor supply chain, particularly due to rising tensions between the U.S. and China, which may pose challenges to AI development in South Korea. The report notes that while South Korea has begun to diversify its chip exports away from China to other regions, China and Hong Kong accounted for over 30% of its chip exports in 2023, with exports to the U.S. making up a similar proportion.
Bank of America analysts indicated that if geopolitical tensions worsen and the U.S. implements further trade restrictions on advanced or AI-related chip exports to China, it could significantly damage South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Disruptions in the supply chain due to rising tensions could complicate South Korean companies’ access to essential manufacturing tools.
The U.S. has reportedly requested that South Korea limit exports of equipment and technology used in the production of both memory chips and advanced logic chips, particularly those with technology more advanced than 14-nanometers and DRAM memory chips exceeding 18-nanometers. South Korean officials are deliberating this request due to potential repercussions for major firms such as Samsung and SK Hynix, both of which have significant operations in China—their largest trading partner.
In parallel, the Biden administration is reportedly considering implementing an export control strategy known as the foreign direct product rule, which would affect allies continuing to supply chipmaking equipment and tools to China. This rule prevents any goods from being exported to any country if they contain a specific percentage of U.S. intellectual property components.