South Korea is experiencing one of the few productivity boosts globally due to artificial intelligence, but analysts from Bank of America warn that rising U.S.-China tensions over semiconductors could hinder this growth.
According to a report by Bank of America Global Research, the semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as a major beneficiary of the AI surge, with its exports rising over 50% compared to the previous year. Analysts are optimistic that South Korea’s substantial investment in AI research and development and an increasing number of AI-related patents will enhance its position in AI technology adoption in the future.
However, the analysts also noted that “potential geopolitical tensions could weigh on the semiconductors supply chain,” particularly concerning the escalating tensions between the U.S. and China. Although South Korea has been diversifying its chip exports away from China to other regions, over 30% of its chip exports in 2023 were still directed to China and Hong Kong, with an equivalent percentage going to the U.S.
The report warns that if geopolitical tensions escalate and the U.S. imposes further trade restrictions on exports of advanced or AI-related chips to China, it could significantly impact memory semiconductor exports from South Korea. Additionally, South Korean chip manufacturers rely on China for some essential chipmaking components and equipment, meaning that disruptions to the supply chain could hinder their ability to produce chips.
The U.S. has reportedly requested South Korea to limit exports to China of tools and technology for manufacturing memory chips and advanced logic chips, particularly those more advanced than 14-nanometer logic chips and DRAM chips exceeding 18-nanometer. South Korean officials are currently evaluating this request due to the potential impact on major South Korean companies like Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
Meanwhile, the Biden administration is allegedly considering implementing an export control called the foreign direct product rule, targeting allies that continue to supply chipmaking tools and equipment to China. This rule would restrict the export of any goods to any country if they were manufactured using a certain percentage of U.S. intellectual property.