Bank of America analysts have pointed out that South Korea is experiencing a productivity boost from artificial intelligence, making it one of the few economies globally to do so. However, tensions between the U.S. and China over semiconductor chips could pose a risk to South Korea’s growth.
The semiconductor sector is crucial for South Korea, representing 17% of its exports. According to a report from Bank of America Global Research, the country has benefitted significantly from the AI boom, with exports rising over 50% year-over-year. Analysts believe South Korea’s extensive investment in AI research and development, along with an increasing number of AI-related patents, will enhance its position in AI adoption in the long run.
Nevertheless, potential geopolitical tensions, particularly between the U.S. and China, could impact the semiconductor supply chain in South Korea. While South Korea has made efforts to diversify its chip exports away from China, over 30% of its chip exports in 2023 still went to China and Hong Kong. Exports to the U.S. accounted for a similar proportion.
Bank of America analysts warned that if geopolitical tensions escalate, leading the U.S. to impose further trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports.
Furthermore, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Any disruption in the supply chain due to rising tensions could hinder these companies’ ability to obtain essential production tools.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology utilized for manufacturing memory chips and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly considering this request due to potential fallout on major firms such as Samsung and SK Hynix, which have operations in China, the nation’s largest trading partner.
In related news, the Biden administration is contemplating an export control called the foreign direct product rule, aimed at allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of goods produced with a certain percentage of U.S. intellectual property components to any country.