Bank of America analysts have noted that South Korea is among the few economies benefiting from increased productivity due to artificial intelligence, although rising U.S.-China tensions over semiconductor technology could hinder the country’s growth.
The semiconductor sector represents 17% of South Korea’s exports, and according to a Bank of America Global Research report, the nation has emerged as a significant beneficiary of the AI surge, with exports soaring by over 50% year-over-year. The report also highlighted that South Korea’s significant investments in AI research and development, as well as its increasing number of AI-related patents, are expected to bolster its status in AI adoption in the long run.
Despite these advancements, analysts cautioned that geopolitical tensions threaten the semiconductor supply chain, particularly the escalating conflict between the U.S. and China, which could pose challenges to South Korea’s AI growth. While South Korea has made efforts to diversify its chip exports beyond China, the report indicated that China and Hong Kong still accounted for over 30% of its chip exports in 2023, with exports to the U.S. being comparable.
Analysts warned that if geopolitical conflicts intensify and the U.S. enacts 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 certain components and equipment used in chip production. Thus, any supply chain disruptions due to rising tensions could hinder their ability to obtain the necessary tools for chip manufacturing.
Reports also suggested that the U.S. has requested South Korea to limit exports to China of equipment and technology essential for producing memory chips and advanced logic chips, particularly those exceeding 14-nanometers for logic chips and 18-nanometers for DRAM memory chips. South Korean officials are reportedly considering this request due to potential consequences for major firms like Samsung and SK Hynix, which have substantial operations in China, their largest trading partner.
In parallel, the Biden administration is contemplating implementing an export control known as the foreign direct product rule against allies that continue supplying chipmaking tools and equipment to China. This rule would restrict exports of any goods produced with a specified percentage of U.S. intellectual property components to any country.