Bank of America analysts have noted that South Korea is among the few economies worldwide experiencing productivity gains from artificial intelligence. However, they highlighted that escalating U.S.-China tensions surrounding semiconductor chips could pose risks to its economic growth.
The semiconductor sector is crucial for South Korea, representing 17% of its total exports. The report stated that South Korea has emerged as a significant beneficiary of the AI surge, recording over a 50% increase in exports year-over-year. Analysts project that the country’s substantial investments in AI research and development, along with a rising number of AI-related patents, will enhance its foothold in AI integration in the long run.
Despite this, the analysts cautioned that geopolitical tensions could disrupt the semiconductor supply chain, particularly due to ongoing friction between the U.S. and China. Although South Korea has worked to diversify its chip exports away from China to other regions, the country still relied on China and Hong Kong for more than 30% of its chip exports in 2023, a figure that is mirrored in its exports to the U.S.
Bank of America analysts warned that further escalation of geopolitical conflicts could lead to new trade restrictions on advanced and AI-related chip exports to China, significantly impacting South Korea’s memory semiconductor exports.
South Korean chip manufacturers also rely on China for various components and equipment essential for chip production. Any disruption in this supply chain due to rising tensions could hinder their ability to procure vital production tools.
The U.S. has reportedly urged South Korea to limit exports to China regarding equipment and technology used for memory and advanced logic chip manufacturing. Specifically, there’s concern over logic chips that surpass 14-nanometer technology and DRAM chips beyond 18-nanometer. South Korean officials are weighing these requests due to their potential impact on major corporations like Samsung and SK Hynix, which have significant operations in China, the country’s largest trading partner.
Additionally, the Biden administration is contemplating employing an export control measure known as the foreign direct product rule against allies who continue selling chipmaking tools to China. This rule would restrict the export of any goods to any nation if they are produced using a specified proportion of U.S.-made intellectual property.