South Korea is among the few economies globally experiencing a productivity increase driven by artificial intelligence, but analysts from Bank of America caution that U.S.-China tensions regarding semiconductors could hinder its growth.
The semiconductor sector represents 17% of South Korea’s exports, and the country has emerged as the top benefactor of the AI surge, with exports rising by over 50% year-over-year, as revealed in a Bank of America Global Research report. Analysts believe that South Korea’s substantial investment in AI research and its increasing number of AI-related patents will enhance its AI adoption capabilities in the long run.
However, potential geopolitical conflicts may impact the semiconductor supply chain, particularly the escalating tensions between the U.S. and China, which pose risks to AI progress in South Korea. The report highlights that while South Korea has diversified its chip exports away from China, exports to China and Hong Kong still accounted for over 30% in 2023, with exports to the U.S. being similar.
The analysts noted that if geopolitical tensions worsen and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports. Additionally, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Disruptions in the supply chain could complicate access for South Korean companies to the tools needed for manufacturing chips.
The U.S. has reportedly requested that South Korea limit its exports to China of equipment and technology related to memory chip and advanced logic chip production, particularly those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are deliberating the U.S. request, considering the potential impacts on major South Korean firms such as Samsung and SK Hynix, which operate within China—their largest trading partner.
Additionally, the Biden administration is reportedly contemplating the implementation of an export control measure known as the foreign direct product rule against allies that continue to supply chipmaking tools and equipment to China. This regulation would prohibit the export of any goods to any country if a certain percentage of the product incorporates U.S. intellectual property.