South Korea is experiencing a significant productivity increase attributed to artificial intelligence, but analysts from Bank of America caution that rising tensions between the U.S. and China regarding semiconductors could pose risks to the country’s economic growth.
According to a report from Bank of America Global Research, the semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as a major beneficiary of the AI surge, with exports rising over 50% year-over-year. Analysts believe that the country’s substantial investment in AI research and development, along with an increasing number of AI-related patents, will enhance its position in AI adoption in the long term.
However, the report highlights that geopolitical tensions, particularly between the U.S. and China, could impact the semiconductor supply chain, which may hinder AI growth in South Korea. Despite diversifying its chip exports beyond China, over 30% of South Korea’s semiconductor exports in 2023 were still directed to China and Hong Kong, with exports to the U.S. at similar levels.
The analysts warn that should geopolitical conflicts escalate and the U.S. implements further trade restrictions on advanced or AI-related chip exports to China, it could have a detrimental effect on South Korea’s memory semiconductor exports. Additionally, South Korean chip producers rely on China for essential components and equipment for chipmaking, meaning any supply chain disruptions could complicate production processes.
The U.S. has reportedly requested South Korea to limit exports of equipment and technology used in the production of memory chips and advanced logic chips to China, specifically targeting chips that are more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are considering the implications of this request, given the potential impact on major firms like Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
Simultaneously, the Biden administration is contemplating the application of an export control known as the foreign direct product rule on allies who continue to supply chipmaking tools and equipment to China. This measure would prevent the export of any goods produced with a certain percentage of U.S. intellectual property to any country.