South Korea is experiencing a unique productivity surge driven by artificial intelligence, although escalating U.S.-China tensions regarding semiconductor technology may threaten its growth, according to analysts from Bank of America.
The semiconductor sector is vital to South Korea, comprising 17% of its exports. A recent report from Bank of America Global Research highlights that South Korea has reaped significant benefits from the AI boom, with exports rising over 50% year-over-year. Analysts believe that ongoing investments in AI research and development, along with an increasing number of AI-related patents, will enhance South Korea’s position in the AI landscape in the long term.
However, analysts caution that geopolitical issues, particularly the friction between the U.S. and China, could impact the semiconductor supply chain. Even though South Korea has been diversifying its chip exports beyond China to other regions, the report notes that China and Hong Kong accounted for over 30% of South Korea’s chip exports in 2023, with exports to the United States being similar.
Bank of America analysts indicated that if tensions escalate and the U.S. enforces further trade restrictions on advanced and 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 certain components and equipment needed in chip production. Disruptions in the supply chain due to rising tensions could complicate access to the necessary tools for manufacturing chips.
The U.S. has reportedly requested South Korea to limit exports of equipment and technology for producing memory and advanced logic chips to China, particularly those exceeding specific technological thresholds. South Korean officials are contemplating the implications of this request, especially concerning major companies like Samsung and SK Hynix, which have significant operations in China, the country’s largest trading partner.
Meanwhile, the Biden administration is considering implementing an export control known as the foreign direct product rule, which targets allies that continue to sell chipmaking tools and equipment to China. This rule would prohibit exports to any nation if the products contain a certain percentage of U.S. intellectual property.