South Korea is experiencing a productivity increase from artificial intelligence, a notable trend among global economies, though Bank of America analysts warn that escalating U.S.-China tensions over semiconductor chips could threaten this growth.
According to a report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports, and the nation has benefited significantly from the AI boom, with exports surging over 50% year-over-year. Analysts indicate that South Korea’s substantial investments in AI research and development and its increasing number of AI-related patents are likely to enhance its position in AI adoption further.
Nevertheless, potential geopolitical conflicts may pose challenges to the semiconductor supply chain, particularly amid the increasing friction between the U.S. and China. Although South Korea has started diversifying its chip exports away from China, the report highlights that 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 expressed concerns that if geopolitical tensions escalate and the U.S. enacts further trade restrictions on advanced or AI-related semiconductor exports to China, it could significantly impact South Korea’s memory chip exports.
South Korean chip manufacturers also rely on China for various components and equipment essential for chip production. Disruptions in the supply chain due to diplomatic tensions could hinder South Korean companies’ abilities to procure necessary tools for chip manufacturing.
The U.S. has reportedly requested that South Korea limit exports of equipment and technology required for producing memory and advanced logic chips, particularly those exceeding 14-nanometer and 18-nanometer specifications. South Korean officials are deliberating on this request, considering the potential repercussions for major domestic firms like Samsung and SK Hynix, which have operations in China—its largest trading partner.
Additionally, the Biden administration is contemplating implementing an export control known as the foreign direct product rule, which would restrict allies from selling chipmaking tools and equipment to China. This rule would prevent the export of any goods produced with a specified percentage of U.S. intellectual property.