Bank of America analysts have indicated that South Korea is among the few economies worldwide experiencing productivity gains from artificial intelligence (AI). However, escalating U.S.-China tensions over semiconductor technology may pose challenges to South Korea’s growth prospects.
The semiconductor sector contributes significantly to South Korea’s economy, accounting for 17% of its exports. According to a Bank of America Global Research report, the country has emerged as a major beneficiary of the AI boom, with export levels increasing by over 50% year-on-year. Analysts believe that South Korea’s significant investments in AI research and development, along with a rising number of AI-related patents, will enhance its position in adopting AI technologies.
Nonetheless, the report warns that geopolitical tensions could negatively impact the semiconductor supply chain, particularly amid the ongoing conflict between the United States and China. While South Korea has successfully diversified its chip exports, China and Hong Kong still represent more than 30% of these exports, with similar figures for the United States.
Analysts from Bank of America stated that should tensions escalate and the U.S. enforce further trade restrictions on advanced or AI-related semiconductor exports to China, it could severely affect South Korea’s memory semiconductor export market.
Moreover, South Korean semiconductor manufacturers rely on China for essential components and equipment necessary for chip production. Any disruption to this supply chain could hinder their ability to procure the tools required for manufacturing.
Reports suggest that the U.S. has requested South Korea to limit exports to China of technologies and equipment used in the production of memory chips and advanced logic chips, specifically those more advanced than 14-nanometer and 18-nanometer DRAM memory chips. South Korean officials are reportedly deliberating the U.S. request due to potential consequences on leading firms like Samsung and SK Hynix, which have operations in China, their largest trading partner.
Additionally, the Biden administration is considering implementing an export control mechanism known as the foreign direct product rule, targeting allies that continue supplying chipmaking tools and equipment to China. This regulation would prohibit the export of goods manufactured with a specified percentage of U.S. intellectual property to any country.