South Korea is experiencing a notable boost in productivity driven by artificial intelligence, but analysts from Bank of America caution that rising U.S.-China tensions regarding semiconductor technology could threaten this growth.
According to a Global Research report from Bank of America, the semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as a significant beneficiary of the AI surge, with exports soaring more than 50% year-over-year. The analysts believe that South Korea’s substantial investment in AI research and development, along with an increasing number of AI-related patents, will enhance its ability to adopt AI technologies in the future.
Nonetheless, potential geopolitical conflicts could disrupt the semiconductor supply chain, particularly due to escalating tensions between the United States and China. While South Korea has begun diversifying its chip exports to regions beyond China, over 30% of its chip exports in 2023 were still directed to China and Hong Kong, which is comparable to the amount exported to the U.S.
Bank of America analysts warned that if U.S.-China tensions worsen and the U.S. enacts additional trade constraints on advanced or AI-related chip exports to China, it could severely impact memory semiconductor exports from South Korea.
Furthermore, South Korean chip manufacturers rely on China for essential chip-making components and equipment. Disruptions in this supply chain could hinder the ability of South Korean companies to acquire the necessary tools for chip production.
The United States has reportedly requested that South Korea limit exports to China of equipment and technology used to produce memory chips and advanced logic chips, specifically those more advanced than 14-nanometer technology and DRAM memory chips exceeding 18-nanometer technology. South Korean officials are contemplating this request, considering its implications for key companies like Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
In addition, the Biden administration is reportedly considering implementing an export control measure known as the foreign direct product rule against allies that continue supplying chip-making tools and equipment to China. This regulation would prohibit the export of any products to any country if they are made using a specific percentage of U.S. intellectual property.