Bank of America analysts have highlighted that South Korea is experiencing a productivity increase due to artificial intelligence, though rising tensions between the U.S. and China regarding semiconductor technology may pose risks to its economic growth.
The semiconductor sector constitutes 17% of South Korea’s exports, and according to a Global Research report from Bank of America, the nation has been a significant benefactor of the AI surge, with exports climbing over 50% year-on-year. Analysts believe that South Korea’s substantial investments in AI research and development, coupled with a rising number of AI-related patents, will enhance the country’s stance in AI adoption over time.
However, the analysts caution that “potential geopolitical tensions could weigh on the semis supply chain,” especially in light of increasing conflicts between the U.S. and China, which might challenge AI growth in South Korea. Although South Korea has diversified its chip exports beyond China to other regions, more than 30% of its chip exports in 2023 still went to China and Hong Kong, with roughly the same proportion directed to the U.S.
The analysts warned that if geopolitical tensions escalate and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could significantly impact South Korea’s memory semiconductor exports. Additionally, South Korean chip manufacturers rely on China for certain components and equipment needed for chip production. Any disruptions in the supply chain due to escalating tensions could complicate the procurement of these essential tools.
The U.S. has reportedly requested that South Korea limit exports to China for equipment and technology associated with manufacturing memory and advanced logic chips, particularly those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly evaluating the U.S. request, considering the potential consequences for major domestic companies like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
Simultaneously, the Biden administration is contemplating the use of an export control measure known as the foreign direct product rule against allies that continue exporting chipmaking equipment and tools to China. This rule prohibits the export of any product to any nation if it is produced using a specific percentage of U.S. intellectual property.