South Korea is experiencing a rare productivity boost from artificial intelligence compared to other global economies, but analysts from Bank of America warn that escalating tensions between the U.S. and China regarding semiconductors could hinder this growth.
According to a report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports, and the nation has emerged as the primary beneficiary of the AI surge, with semiconductor exports increasing by over 50% year-over-year. Analysts believe that South Korea’s significant investment in AI research and development, along with an uptick in AI-related patents, will further strengthen its leadership in AI adoption.
However, the report cautions that potential geopolitical conflicts could impact the semiconductor supply chain. This is particularly relevant given the rising tensions between the U.S. and China, which may pose obstacles to AI advancements in South Korea. In 2023, China and Hong Kong accounted for more than 30% of South Korea’s chip exports, with exports to the U.S. being roughly equal.
Bank of America analysts state that if geopolitical tensions escalate and the U.S. enforces stricter trade regulations on advanced or AI-specific chip exports to China, it could significantly impact Korea’s memory chip exports.
Moreover, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. If these tensions disrupt supply chains, it would complicate access to essential tools for South Korean companies.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology used in producing memory chips and advanced logic chips, specifically those exceeding 14-nanometer technology and DRAM chips beyond 18-nanometer. South Korean authorities are considering this request, taking into account the potential consequences for major South Korean companies like Samsung and SK Hynix, which have significant operations in China.
Additionally, the Biden administration is reportedly contemplating the implementation of an export control measure known as the foreign direct product rule against allies that continue to sell chipmaking tools and equipment to China. This rule would restrict the export of any goods that are manufactured with a certain percentage of U.S. intellectual property components to any country.