Bank of America analysts have reported that South Korea is among the few economies globally experiencing a productivity boost from artificial intelligence. However, they warn that the ongoing tensions between the U.S. and China regarding semiconductor chips may pose challenges to South Korea’s growth.
According to a Global Research report, the semiconductor industry constitutes 17% of South Korea’s exports, and the country has emerged as a major beneficiary of the AI surge, with exports increasing by over 50% year-over-year. Analysts believe that South Korea’s significant investments in AI research and development, along with a rising number of AI-related patents, will enhance the nation’s standing in AI adoption in the long run.
However, the report highlights that potential geopolitical tensions could impact the semiconductor supply chain, particularly the escalating friction between the U.S. and China. While South Korea has sought to diversify its chip exports beyond China, the report indicates that over 30% of its chip exports in 2023 were to China and Hong Kong. Exports to the U.S. represented a similar share.
Bank of America analysts caution that if U.S.-China tensions escalate, particularly if the U.S. imposes additional trade restrictions on advanced or AI-related chip exports to China, it could significantly harm South Korea’s memory semiconductor exports.
South Korean chip manufacturers also rely on China for certain components and equipment necessary for chip production. Consequently, any disruption to this supply chain could complicate operations for South Korean firms in securing the tools required for chip manufacturing.
Reports suggest that the U.S. has requested South Korea to limit exports of equipment and technology used in the production of memory chips and advanced logic chips to China, particularly those more advanced than 14-nanometers and DRAM memory chips exceeding 18-nanometers. South Korean officials are considering the U.S. request, mindful of potential repercussions for major domestic firms such as Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
Furthermore, the Biden administration is reportedly contemplating applying an export control known as the foreign direct product rule against allies that continue to supply chipmaking tools and equipment to China. This rule prohibits the export of any goods to any country if they incorporate a specific percentage of U.S. intellectual property components.