Bank of America analysts have highlighted that South Korea is one of the few countries experiencing a productivity boost driven by artificial intelligence, though escalating tensions between the U.S. and China regarding semiconductor trade could hinder this growth.
According to a report, the semiconductor sector constitutes 17% of South Korea’s exports, making the nation a significant beneficiary of the AI surge, with exports increasing by over 50% year-on-year. The analysts believe that ongoing investments in AI research and development and a rise in AI-related patents will enhance South Korea’s role in AI adoption.
However, the report warns that geopolitical conflicts, particularly between the U.S. and China, could impact the semiconductor supply chain. Although South Korea has diversified its chip exports beyond China, more than 30% of its exports still went to China and Hong Kong in 2023. Exports to the U.S. accounted for a similar portion.
The analysts noted that if U.S.-China tensions escalate and the U.S. imposes trade restrictions on advanced chips supplied to China, it could greatly affect South Korea’s memory semiconductor exports. South Korean chip manufacturers also rely on China for some components and equipment required for chip production. Disruptions in this supply chain could pose significant challenges for these companies.
The U.S. has reportedly requested that South Korea limit exports to China of specific equipment and technology used in manufacturing advanced and memory chips. South Korean officials are considering the implications for major companies like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
Additionally, the Biden administration may impose export controls on allied nations that continue to sell chipmaking tools to China, utilizing a rule that restricts the export of goods manufactured with a certain percentage of U.S. intellectual property.