According to analysts from Bank of America, South Korea is one of the few economies worldwide benefiting from a surge in productivity linked to artificial intelligence. However, escalating tensions between the U.S. and China regarding semiconductor technology could hinder its growth.
The semiconductor sector represents 17% of South Korea’s total exports, and the country has been a major beneficiary of the AI surge, with exports increasing by over 50% year-on-year. The analysts predict that South Korea’s significant investment in AI research and development, along with a rise in AI-related patents, will strengthen its position in AI integration moving forward.
Nonetheless, the analysts caution that geopolitical tensions could impact the supply chain for semiconductors, particularly in light of the ongoing U.S.-China rivalry. Although South Korea has diversified its chip exports beyond China, over 30% were still directed to China and Hong Kong in 2023, with chip exports to the U.S. matching that figure.
Bank of America analysts warned that if U.S.-China tensions escalate further and the U.S. enforces additional trade restrictions on advanced chips exports to China, it could severely impact South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for essential components and equipment used in chip production. Disruptions in this supply chain could make it challenging for these companies to obtain the necessary tools for chip manufacturing.
The U.S. government has reportedly requested that South Korea limit exports to China of equipment and technology essential for producing memory and advanced logic chips. South Korean officials are reportedly considering this request, given the potential repercussions for major local companies like Samsung and SK Hynix, which are active in the Chinese market.
Furthermore, the Biden administration is exploring the implementation of an export control mechanism known as the foreign direct product rule, targeting allied nations that continue to supply chipmaking tools and technology to China. This rule would prevent the export of any product to any country if it contains a certain percentage of U.S. intellectual property.