South Korea is experiencing one of the few productivity boosts from artificial intelligence globally, although rising tensions between the U.S. and China regarding semiconductor exports could threaten this growth, according to analysts at Bank of America.
Bank of America Global Research notes that the semiconductor sector represents 17% of South Korea’s exports, and the country has been a major beneficiary of the AI surge, with export levels climbing over 50% year-over-year. Analysts believe that South Korea’s substantial investments in AI research and development and an increasing number of AI-related patents will continue to enhance its status in AI adoption.
However, the report highlights that “potential geopolitical tensions could impact the semiconductor supply chain,” particularly due to ongoing U.S.-China friction, which may present challenges to AI growth in South Korea. While South Korea has successfully diversified its chip exports to other regions, over 30% of its semiconductor exports still went to China and Hong Kong in 2023, with exports to the U.S. being similar.
The analysts caution that if U.S. trade restrictions on advanced or AI-related chip exports to China were to intensify, this could severely affect South Korea’s memory semiconductor exports. Additionally, South Korean chip manufacturers rely on China for key components and equipment; any disruptions to this supply chain could complicate the production of chips in South Korea.
Reports indicate that the U.S. has requested South Korea to limit exports of machinery and technology used to produce advanced memory chips and logic chips to China, specifically targeting devices exceeding 14-nanometer technology for logic chips and beyond 18-nanometer for DRAM chips. South Korean officials are reportedly considering this request, weighing potential impacts on major companies like Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
At the same time, the Biden administration is reportedly contemplating the application of an export control measure known as the foreign direct product rule on allies that continue to sell chip manufacturing tools to China. This rule prohibits the export of goods to any country if they are produced using a certain proportion of U.S. intellectual property.