South Korea stands out as one of the few economies witnessing productivity gains from artificial intelligence, although escalating tensions between the U.S. and China regarding semiconductor technologies could pose challenges to its growth, according to analysts from Bank of America.
The semiconductor industry represents 17% of South Korea’s exports, and the country has been a significant beneficiary of the AI surge, with exports soaring over 50% compared to the previous year, as highlighted in a report from Bank of America Global Research. The analysts believe that South Korea’s substantial investments in AI research and development, along with an increasing number of AI-related patents, will enhance its competitive edge in AI implementation over the long term.
However, the potential for geopolitical tensions, particularly the ongoing friction between the U.S. and China, could impact the semiconductor supply chain, which poses a risk to South Korea’s AI progress. Despite efforts to diversify chip exports away from China to other regions, over 30% of South Korea’s chip exports in 2023 were directed to China and Hong Kong, with a similar percentage going to the U.S.
Bank of America analysts warned that if geopolitical tensions escalate and the U.S. implements further trade restrictions on advanced or AI-related chip exports to China, it could significantly affect South Korea’s memory semiconductor exports.
South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Thus, any disruptions in the supply chain caused by rising tensions could hinder South Korean companies’ ability to acquire the necessary tools for chip manufacturing.
The U.S. has reportedly requested South Korea to limit exports of equipment and technology to China used in the production of memory chips and advanced logic chips, specifically those more advanced than 14-nanometers and DRAM memory chips exceeding 18-nanometers. South Korean officials are considering this request, weighing its implications for major corporations like Samsung and SK Hynix, which have significant operations in China—its largest trading partner.
Additionally, the Biden administration is reportedly contemplating the application of an export control known as the foreign direct product rule on allies that continue to provide chip-making tools and equipment to China. This rule would prevent the export of any goods to any country if they are produced using a certain percentage of U.S. intellectual property components.