South Korea is experiencing a productivity surge from artificial intelligence, distinguishing itself as one of the few global economies benefiting from this trend. However, analysts from Bank of America highlight that U.S.-China conflicts over semiconductors could potentially impede this growth.
The semiconductor sector represents 17% of South Korea’s exports, making it a critical component of the economy. According to a Bank of America Global Research report, the country has emerged as the top beneficiary of the AI boom, with exports increasing by over 50% year-on-year. Looking ahead, analysts believe that South Korea’s substantial investments in AI research and development, along with a rising number of related patents, will enhance its AI adoption further.
Despite these positive indicators, analysts caution that geopolitical tensions, particularly those between the U.S. and China, may impact the semiconductor supply chain, posing risks to AI advancements in South Korea. Although South Korea has begun shifting its chip exports from China to other regions, over 30% of its chip exports in 2023 were still directed to China and Hong Kong, with similar figures for exports to the U.S.
Bank of America analysts warned that if geopolitical tensions intensify and the U.S. enforces stricter trade regulations on advanced or AI-specific chip exports to China, it could severely affect South Korea’s memory semiconductor export sector.
Moreover, South Korean chip producers rely on China for certain components and manufacturing equipment. Any disruption to this supply chain could hinder these companies’ ability to produce chips.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology essential for producing memory chips and advanced logic chips, particularly those more advanced than 14-nanometer and DRAM memory chips larger than 18-nanometer. South Korean officials are reportedly contemplating this request due to the potential implications for major domestic firms like Samsung and SK Hynix, which have significant operations in China, South Korea’s largest trading partner.
Furthermore, the Biden administration is reportedly considering applying an export control known as the foreign direct product rule to allies that continue to sell semiconductor manufacturing tools and equipment to China. This regulation would prohibit the export of any goods produced with a certain proportion of U.S. intellectual property components to any country.