Bank of America analysts have highlighted that South Korea is among the few economies worldwide that are experiencing a productivity increase driven by artificial intelligence. However, they caution that rising tensions between the United States and China over semiconductor technology could impede this growth.
The semiconductor sector is crucial for South Korea, accounting for 17% of the nation’s exports. According to a Bank of America Global Research report, South Korea has emerged as the top beneficiary of the AI surge, with exports soaring more than 50% year-over-year. Analysts believe that the country’s significant investments in AI research and development, along with an increasing number of AI-related patents, will strengthen its position in AI adoption in the long run.
Nevertheless, the potential for geopolitical tensions to impact the semiconductor supply chain has been noted, particularly due to the ongoing friction between the U.S. and China. Despite South Korea’s efforts to diversify its chip exports beyond China, over 30% of its chip exports in 2023 still went to China and Hong Kong, with a similar percentage directed to the U.S.
Bank of America analysts warned that if geopolitical tensions escalate, particularly if the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, South Korea’s memory semiconductor exports could suffer significantly.
Moreover, South Korean chip manufacturers rely on China for essential components and equipment in chip production. Any disruptions in the supply chain due to escalating tensions would complicate South Korean firms’ ability to procure the necessary tools for chip fabrication.
The U.S. has reportedly requested that South Korea limit exports of equipment and technology used for manufacturing memory chips and advanced logic chips, specifically those more advanced than 14-nanometers and DRAM memory chips beyond 18-nanometers. South Korean officials are reportedly considering this request, as it could have significant repercussions for major South Korean firms like Samsung and SK Hynix that operate in China, their largest trading partner.
In parallel, the Biden administration is contemplating implementing an export control measure known as the foreign direct product rule, targeting allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of any goods to any nation if they are produced using a specified percentage of U.S. intellectual property components.