South Korea is experiencing a productivity increase from artificial intelligence, making it one of the few economies benefitting from this technology, according to analysts at Bank of America. However, tensions between the U.S. and China regarding semiconductor chips may pose challenges to South Korea’s growth trajectory.
The semiconductor sector constitutes 17% of South Korea’s exports, and a recent report from Bank of America Global Research indicates that the nation has significantly gained from the AI surge, with exports rising over 50% year-over-year. Analysts project that South Korea’s substantial investments in AI research and development, coupled with a rise in AI-related patents, will further enhance the country’s role in AI integration.
However, the report highlights that “potential geopolitical tensions could weigh on the semiconductors supply chain,” particularly due to escalating U.S.-China relations. Although South Korea has shifted some of its chip exports from China to other regions, China and Hong Kong still accounted for over 30% of South Korea’s chip exports in 2023. Exports to the U.S. were similar in volume.
The Bank of America analysts warned that if geopolitical tensions worsen 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 chip exports. Furthermore, South Korean chip manufacturers rely on China for some components and equipment necessary for chip production, making any disruptions in the supply chain particularly problematic.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technologies used for memory chips and advanced logic chips, especially those more advanced than 14-nanometer and DRAM chips exceeding 18-nanometer. South Korean officials are reportedly evaluating this request, considering its potential impact on major firms like Samsung and SK Hynix, which operate in China—its largest trading partner.
In addition, the Biden administration is contemplating an export control measure known as the foreign direct product rule, which would affect allies that continue to supply chipmaking tools and equipment to China. This rule would prevent any goods from being exported to any country if they are produced with a certain percentage of U.S. intellectual property components.