South Korea is distinguishing itself as one of the few economies benefiting from a surge in productivity thanks to artificial intelligence, according to analysts at Bank of America. However, escalating tensions between the U.S. and China over semiconductor technology may pose risks to this growth.
The semiconductor sector is crucial for South Korea, accounting for 17% of its total exports. A recent report from Bank of America Global Research indicates that the nation has enjoyed over a 50% year-over-year increase in exports, positioning it as a significant beneficiary of the AI boom. Analysts highlighted that South Korea’s substantial investments in AI research and development, alongside a rising number of AI-related patents, are likely to strengthen its leadership in AI adoption in the long run.
On the flip side, the report cautioned that geopolitical tensions, particularly between the U.S. and China, may impact the semiconductor supply chain and the overall growth of AI in South Korea. Despite diversifying its chip exports beyond China, over 30% of South Korea’s semiconductor exports were still directed towards China and Hong Kong in 2023, with similar figures for exports to the U.S.
Bank of America analysts warned that if geopolitical conflicts escalate and the U.S. imposes additional restrictions on exporting advanced or AI-related chips to China, it could have a serious adverse effect on South Korea’s memory semiconductor exports.
Furthermore, South Korean chip producers rely on China for essential components and equipment in chip manufacturing. Disruptions due to heightened tensions could hinder access to necessary production tools for these South Korean companies.
Reports suggest that the U.S. has requested South Korea to limit exports to China of machinery and technologies used to fabricate both memory and advanced logic chips, particularly those exceeding 14-nanometer technology for logic chips and beyond 18-nanometer for DRAM chips. South Korean authorities are reportedly considering the implications of this request, aware of the potential impact on major domestic corporations like Samsung and SK Hynix, which have significant operations in China.
Additionally, the Biden administration is rumored to be contemplating an export regulation known as the foreign direct product rule, aimed at allies that continue to supply chipmaking tools and equipment to China. This regulation would prohibit exports of any goods derived from U.S. intellectual property if a certain threshold of U.S. components is involved.