South Korea is experiencing a unique upswing in productivity due to artificial intelligence, even as U.S.-China tensions regarding semiconductor supplies pose potential challenges to its growth, according to analysts from Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and Bank of America Global Research has reported that the nation has been a significant beneficiary of the AI surge, with exports increasing over 50% year-on-year. Analysts remain optimistic about South Korea’s prospects, citing substantial investments in AI research and development and a rise in AI-related patents that may enhance the country’s position in AI integration going forward.
Nevertheless, analysts caution that escalating geopolitical tensions may impact the semiconductor supply chain, particularly concerning the ongoing friction between the United States and China. While South Korea has worked to diversify its chip exports beyond China, more than 30% of its chip exports still went to China and Hong Kong in 2023, with exports to the U.S. being similar.
Bank of America analysts indicated that if geopolitical tensions worsen and the U.S. imposes stricter trade limitations on advanced or AI-dependent chip exports to China, this could severely affect South Korea’s memory semiconductor exports.
Further complicating the situation, South Korean chip manufacturers rely on China for several components and manufacturing instruments. Any disruptions in this supply chain could hinder South Korean companies’ ability to acquire the necessary tools for chip production.
Reports suggest that the U.S. has asked South Korea to limit the export of equipment and technology used to produce memory and advanced logic chips to China, particularly those more advanced than 14-nanometer and DRAM memory chips over 18-nanometer. South Korean authorities are reportedly deliberating on this request due to potential impacts on major national firms, such as Samsung and SK Hynix, which have operations in China, its largest trading partner.
Additionally, the Biden administration is said to be considering the implementation of an export control mechanism known as the foreign direct product rule against allies that continue to supply chipmaking tools and machinery to China. This rule would prevent the export of any products to any nation if they are produced using a specified percentage of U.S. intellectual property components.