South Korea is experiencing a productivity increase driven by artificial intelligence, distinguishing it as one of the few economies globally to benefit in this manner. However, analysts at Bank of America caution that escalating tensions between the U.S. and China regarding semiconductor production could pose a risk to this growth.
According to a report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s total exports, and the nation has emerged as a primary beneficiary of the AI surge, with exports rising by over 50% year-on-year. Analysts believe that South Korea’s substantial investments in AI research and development, coupled with a growing number of AI-related patents, are likely to bolster its AI adoption in the long run.
Nonetheless, the report highlights that potential geopolitical tensions could negatively impact the semiconductor supply chain, particularly concerning the ongoing friction between the U.S. and China. Despite South Korea diversifying its chip exports, China and Hong Kong accounted for over 30% of its chip exports in 2023, with similar figures for exports to the U.S.
Bank of America analysts noted that if geopolitical tensions intensify and the U.S. enacts further trade restrictions on advanced chips exported to China, it could severely affect South Korea’s memory semiconductor exports. South Korean chip manufacturers are also reliant on Chinese sources for various chipmaking components and equipment, meaning that disruptions in these supply chains could hinder the production capabilities of South Korean companies.
The U.S. has reportedly requested that South Korea limit exports to China of manufacturing equipment and technology for producing advanced memory and logic chips, specifically those exceeding 14-nanometer technology for logic chips and 18-nanometer for DRAM memory. South Korean officials are reportedly considering this request due to potential impacts on major firms like Samsung and SK Hynix, which have significant operations in China, South Korea’s 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 export chipmaking tools to China. This rule would prohibit the export of any goods to any nation if they are produced using a certain percentage of U.S. intellectual property.