Bank of America analysts have indicated that South Korea stands out as one of the few economies worldwide experiencing a productivity surge due to artificial intelligence (AI). However, they also pointed out that escalating U.S.-China tensions over semiconductor supplies could hamper this growth.
According to a report by Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports, and the nation has emerged as a significant beneficiary of the AI boom, with exports rising by over 50% year-over-year. Analysts remain optimistic, highlighting that South Korea’s substantial investments in AI research and development, coupled with an increasing number of AI-related patents, are expected to bolster its position in AI adoption further.
Nonetheless, the analysts cautioned that potential geopolitical conflicts could exert pressure on the semiconductor supply chain, particularly the intensifying rivalry between the U.S. and China, which poses risks to AI advancement in South Korea. Although the country has begun to diversify its chip exports away from China to other regions, it is reported that over 30% of its chip exports still went to China and Hong Kong in 2023, with exports to the U.S. being nearly equivalent.
The analysts warned that should geopolitical tensions heighten and the U.S. implement further trade restrictions on the export of advanced or AI-related chips to China, it could severely affect South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers are reliant on China for various chipmaking components and equipment. Any disruption in the supply chain due to strained relations would likely complicate the ability of South Korean companies to acquire the necessary tools for chip production.
Reports indicate that the U.S. has requested that South Korea limit exports to China of equipment and technology essential for producing memory chips and advanced logic chips, particularly those with advanced specifications. South Korean officials are reportedly considering this request due to potential implications for major firms such as Samsung and SK Hynix, which have operations in China, its largest trading partner.
In related developments, the Biden administration is contemplating implementing an export control mechanism known as the foreign direct product rule on allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of any product to any nation if it contains a certain percentage of U.S. intellectual property components.