South Korea stands out as one of the few economies experiencing a productivity increase due to artificial intelligence. However, analysts from Bank of America warn that rising tensions between the U.S. and China over semiconductor chips could impede this growth.
The semiconductor sector represents 17% of South Korea’s exports. Bank of America Global Research highlights that South Korea has been a significant beneficiary of the AI surge, with exports rising by more than 50% over the past year. Analysts believe that the nation’s substantial investments in AI research and development, coupled with an increasing number of AI-related patents, will enhance its position in AI adoption in the long run.
Nonetheless, analysts caution that potential geopolitical disputes may impact the semiconductor supply chain, particularly the escalating tensions between the U.S. and China, which could hinder AI growth in South Korea. Despite the country’s efforts to diversify its chip exports beyond China, over 30% of its chip exports were directed to China and Hong Kong in 2023, with a similar proportion going to the U.S.
Bank of America analysts note that if geopolitical tensions worsen and the U.S. implements further trade restrictions on advanced or AI-related chip exports to China, it could severely affect memory semiconductor exports from South Korea.
Additionally, South Korean chip manufacturers rely on China for essential chipmaking components and equipment. Disruptions in this supply chain due to escalating tensions could compromise the ability of South Korean companies to acquire the necessary tools for chip production.
The U.S. has reportedly requested that South Korea limit its exports of equipment and technology used for manufacturing memory chips and advanced logic chips, specifically those surpassing 14-nanometer for logic chips and 18-nanometer for DRAM memory chips. South Korean officials are reportedly considering this request due to potential impacts on major firms, including Samsung and SK Hynix, which operate in China, their largest trading partner.
In parallel, the Biden administration is looking into using an export control known as the foreign direct product rule against allies that continue supplying China with chipmaking tools and equipment. This rule prevents the export of any item to any country if it incorporates a specific percentage of U.S. intellectual property components.