Bank of America analysts have reported that South Korea stands out among global economies as one of the few experiencing a productivity increase due to artificial intelligence. However, they caution that rising tensions between the U.S. and China regarding semiconductor technology could pose risks to this progress.
The semiconductor sector is crucial for South Korea, accounting for 17% of the nation’s exports. Bank of America Global Research indicates that South Korea has benefitted significantly from the AI surge, with export figures rising over 50% year-over-year. Analysts are optimistic about the country’s heavy investment in AI research and development, as well as an increasing number of AI-related patents, which they believe will enhance South Korea’s position in AI implementation.
On the other hand, the analysts warn that geopolitical tensions may impact the semiconductor supply chain, particularly due to the escalating friction between the U.S. and China. Despite South Korea’s efforts to diversify its chip export markets away from China, the report highlights that over 30% of its chip exports still went to China and Hong Kong in 2023, with the U.S. receiving a similar proportion.
Should U.S.-China tensions intensify and lead to new trade restrictions on advanced or AI-related chip exports to China, it could substantially harm South Korea’s memory semiconductor exports, according to analysts at Bank of America.
Additionally, South Korean chip manufacturers rely on China for several components and equipment necessary for chip production. Disruptions in this supply chain due to rising tensions could hinder the ability of South Korean companies to obtain the essential tools for chip manufacturing.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technology used in the production of memory chips and advanced logic chips, particularly those more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean authorities are currently deliberating on this request, taking into account the potential impact on major South Korean corporations like Samsung and SK Hynix, which have significant operations in China, South Korea’s largest trading partner.
Furthermore, the Biden administration is considering the application of an export control known as the foreign direct product rule, targeting allies that continue to supply chipmaking tools and equipment to China. This rule would prohibit the export of any product made with a certain percentage of U.S. intellectual property to any nation.