South Korea is among the few economies experiencing a productivity surge due to artificial intelligence, although analysts at Bank of America caution that rising U.S.-China tensions over semiconductor technology could hinder this growth.
According to a report from Bank of America Global Research, the semiconductor sector represents 17% of South Korea’s exports. The country’s performance regarding AI has been notable, with exports increasing over 50% year-over-year, making it a significant beneficiary of the AI boom. Analysts anticipate that South Korea’s substantial investments in AI research and development, along with a rising number of related patents, will enhance its position in AI utilization in the long term.
However, analysts warn that geopolitical conflicts, particularly between the U.S. and China, could impact the semiconductor supply chain, thereby challenging AI advancements in South Korea. Although the country has successfully diversified its chip exports beyond China, the report notes that in 2023, more than 30% of its chip exports were directed to China and Hong Kong, with a similar proportion going to the U.S.
Bank of America analysts state that should U.S.-China tensions escalate and the U.S. implements further trade restrictions on exports of advanced or AI-related chips to China, it could substantially disrupt South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment essential for chip production. If geopolitical tensions interfere with the supply chain, it could complicate access to necessary production tools for these South Korean firms.
Reports indicate that the U.S. has urged South Korea to limit exports to China of equipment and technology for producing memory chips and advanced logic chips, particularly those exceeding 14-nanometer and 18-nanometer thresholds, respectively. South Korean officials are reportedly evaluating this request, considering the potential repercussions for major companies, such as Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
In parallel, the Biden administration is reportedly contemplating employing an export regulation known as the foreign direct product rule on allies that continue to supply chipmaking technology to China. This rule would prevent the export of certain goods to any country if they are manufactured using a specified percentage of U.S. intellectual property.