South Korea stands out as one of the few economies experiencing an increase in productivity driven by artificial intelligence, though ongoing U.S.-China tensions regarding semiconductor technology pose potential risks to its growth, according to analysts from Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as the leading beneficiary of the AI boom, with exports rising by over 50% compared to the previous year, as highlighted in a report from Bank of America Global Research. Analysts predict that South Korea’s significant investments in AI research and development, coupled with an increasing number of AI-related patents, will strengthen its position in AI adoption moving forward.
However, the report cautions that potential geopolitical tensions could impact the semiconductor supply chain, particularly due to the rising friction between the U.S. and China. While South Korea has made efforts to diversify its chip exports away from China towards other regions, China and Hong Kong accounted for over 30% of the country’s chip exports in 2023, with exports to the U.S. being similar.
Bank of America analysts suggested that if U.S.-China tensions escalate and the United States imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely impact South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for various components and equipment necessary for chip production. Disruptions in the supply chain due to geopolitical tensions could hinder South Korean firms’ ability to acquire the tools needed for manufacturing chips.
Reports indicate that the U.S. has requested South Korea to limit exports to China involving equipment and technology for producing memory chips and advanced logic chips, particularly those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly considering the U.S. request due to the potential consequences for major domestic companies like Samsung and SK Hynix, which have significant operations in China, South Korea’s largest trading partner.
In addition, the Biden administration is reportedly contemplating the implementation of an export control known as the foreign direct product rule, aimed at allies that continue supplying chipmaking tools and equipment to China. This rule would prevent the export of any products to any country if they are manufactured with a specific percentage of U.S. intellectual property.