South Korea stands out as one of the few economies benefiting from a surge in productivity driven by artificial intelligence, according to analysts at Bank of America. However, increasing tensions between the U.S. and China over semiconductor technology may pose challenges to its growth.
The semiconductor sector constitutes 17% of South Korea’s exports, and the country has emerged as a significant beneficiary of the AI growth, with exports reportedly rising over 50% year-over-year, as noted in a report from Bank of America Global Research. Analysts project that South Korea’s substantial investment in AI research and development, combined with a rising number of AI-related patents, will further enhance its position in the adoption of AI technology.
Nevertheless, the analysts cautioned that “potential geopolitical tensions could impact the semiconductor supply chain,” particularly due to escalating U.S.-China conflicts, which could hinder AI growth in South Korea. Although the nation has diversified its chip exports beyond China to other regions, China and Hong Kong accounted for over 30% of its chip exports in 2023, with exports to the U.S. being approximately equivalent.
Bank of America analysts warned that if geopolitical tensions escalate and the U.S. implements additional trade restrictions on advanced or AI-related chip exports to China, it could significantly impact South Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for various chipmaking components and equipment. Any disruptions in this supply chain could hinder the ability of South Korean companies to obtain necessary tools for chip production.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technology for producing memory and advanced logic chips, particularly those more sophisticated than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are considering the U.S. request, weighing the potential impacts on major firms like Samsung and SK Hynix, which operate within China, its largest trading partner.
Additionally, the Biden administration is reportedly contemplating the implementation of an export control mechanism known as the foreign direct product rule on allies that continue to supply chipmaking tools to China. This regulation would prevent the export of any product manufactured with a specific percentage of U.S. intellectual property to any other country.