South Korea is experiencing a unique productivity boost linked to artificial intelligence, while ongoing U.S.-China tensions regarding semiconductor technology could pose risks to its growth, according to Bank of America analysts.
The semiconductor sector is crucial for South Korea, making up 17% of the nation’s exports. A recent report from Bank of America Global Research highlights that South Korea is the largest beneficiary of the current AI boom, with exports soaring more than 50% year-on-year. Analysts believe that the nation’s significant investments in AI research and increasing patents related to AI will enhance its position in adopting this technology over the long term.
However, the report cautions that rising geopolitical tensions, particularly between the U.S. and China, could negatively impact the semiconductor supply chain. Despite South Korea’s efforts to diversify its chip exports away from China, over 30% of its semiconductor exports were directed to China and Hong Kong in 2023, with similar figures for exports to the U.S.
Bank of America analysts warned that if U.S.-China tensions escalate, particularly through potential U.S. trade restrictions on exports of advanced or AI-related chips to China, South Korea’s memory semiconductor exports could be significantly affected.
Additionally, South Korean chip manufacturers rely on China for essential components and equipment used in chip production. Consequently, any disruptions in the supply chain due to geopolitical issues could hinder the ability of South Korean firms to obtain crucial tools for chip manufacturing.
The U.S. has reportedly requested that South Korea limit exports to China of certain chipmaking equipment and technology. This includes a focus on advanced logic chips exceeding 14-nanometer processes and DRAM memory chips surpassing 18-nanometer technology. South Korean officials are considering this request, taking into account the potential impact on major companies like Samsung and SK Hynix, which have significant operations in China, South Korea’s largest trading partner.
In addition, the Biden administration is contemplating implementing an export control known as the foreign direct product rule, targeting allies that continue to supply chipmaking tools to China. This regulation would prevent the export of any goods that incorporate a specific percentage of U.S. intellectual property.