According to Bank of America analysts, South Korea is uniquely positioned as one of the few economies experiencing a productivity increase due to artificial intelligence, although tensions between the U.S. and China over semiconductor technology could pose risks to its growth.
The semiconductor sector is crucial for South Korea, constituting 17% of its exports. The country has emerged as a major beneficiary of the AI surge, with exports rising over 50% year-over-year, as noted in a Bank of America Global Research report. Analysts predict that South Korea’s substantial investments in AI research and development, along with an increasing number of AI-related patents, will enhance its role in AI adoption in the long run.
However, the analysts cautioned that geopolitical tensions, particularly between the U.S. and China, could negatively impact the semiconductor supply chain. South Korea has begun diversifying its chip exports away from China; nonetheless, over 30% of its chip exports in 2023 were still directed to China and Hong Kong, with a similar percentage going to the U.S.
If tensions escalate and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could seriously hinder South Korea’s memory semiconductor exports, the report stated. Additionally, South Korean chip manufacturers rely on China for various chipmaking components and equipment, which means that any disruption in the supply chain due to heightened tensions could complicate production efforts.
Reports indicate that the U.S. has requested South Korea to restrict the export of equipment and technology required for producing memory chips and advanced logic chips, specifically those that are more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly considering this request, weighing the potential impacts on major domestic companies like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
Furthermore, the Biden administration is speculated to be contemplating the implementation of an export control known as the foreign direct product rule against allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of goods manufactured with a certain percentage of U.S. intellectual property to any country.