Bank of America analysts noted that South Korea is experiencing significant productivity gains from artificial intelligence. However, rising tensions between the U.S. and China, particularly regarding semiconductors, may pose risks to this growth.
According to a report, the semiconductor sector constitutes 17% of South Korea’s exports. South Korea has emerged as a primary beneficiary of the AI surge, with its exports rising by over 50% year-over-year. Analysts believe that the nation’s substantial investments in AI research and development, along with an increasing number of AI-related patents, will enhance its AI adoption in the long run.
Despite these advancements, the report highlights that geopolitical tensions, particularly the fraying relations between the U.S. and China, could impact the semiconductor supply chain. In 2023, China and Hong Kong represented over 30% of South Korea’s chip exports, with similar figures for exports to the U.S. While South Korea has made efforts to diversify its semiconductor exports away from China, potential trade restrictions could hinder its growth in the AI sector.
Bank of America analysts warned that escalated geopolitical conflicts or new U.S. trade restrictions on AI-related chip exports to China could severely affect South Korean memory chip exports. Furthermore, South Korean chip manufacturers rely on Chinese suppliers for crucial components and equipment. Disruptions in these supply chains could complicate the production of chips in South Korea.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology used in the production of memory and advanced logic chips, particularly those more sophisticated than 14-nanometers and DRAM chips over 18-nanometers. South Korean officials are reportedly deliberating this request due to potential implications for major companies like Samsung and SK Hynix, which have significant operations in China, South Korea’s largest trading partner.
Additionally, the Biden administration is said to be considering an export control measure known as the foreign direct product rule, aimed at allies that continue supplying chipmaking tools to China. This regulation would limit the export of any goods made with a certain percentage of U.S. intellectual property to any country.