South Korea is witnessing a notable productivity boost from artificial intelligence, distinguishing it as one of the few economies globally to do so. However, analysts from Bank of America caution that rising tensions between the U.S. and China regarding semiconductor technology might pose challenges to this growth trajectory.
According to a Bank of America Global Research report, the semiconductor sector constitutes 17% of South Korea’s exports, and the nation has reaped significant benefits from the AI surge, experiencing more than a 50% increase in exports year-over-year. Analysts believe that South Korea’s substantial investments in AI research and development, alongside a growing portfolio of AI-related patents, will enhance its leadership in AI adoption over the long term.
Nevertheless, potential geopolitical tensions could threaten the semiconductor supply chain. The ongoing strife between the U.S. and China is of particular concern, as South Korea has redirected some of its chip exports from China to other regions. Nevertheless, over 30% of its chip exports were still directed to China and Hong Kong in 2023, with exports to the U.S. being similarly significant.
Bank of America analysts warn that should geopolitical tensions escalate further, particularly if the U.S. enforces additional trade restrictions on the export of advanced or AI-related chips to China, it could severely impact South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers depend on China for specific components and equipment necessary for chip production. Disruptions in the supply chain due to rising tensions could hinder these firms’ ability to procure essential manufacturing tools.
Reports indicate that the U.S. has requested South Korea to impose restrictions on exports of equipment and technology essential for manufacturing memory chips and advanced logic chips to China, specifically targeting logic chips more advanced than 14-nanometers and DRAM memory chips exceeding 18-nanometers. South Korean officials are reportedly deliberating this request due to the potential consequences for major South Korean corporations, including Samsung and SK Hynix, which have significant operations in China, their largest trading partner.
In parallel, the Biden administration is contemplating the application of an export control known as the foreign direct product rule on allied nations that continue to supply chipmaking tools and machinery to China. This rule would restrict the export of any goods to any nation if they contain a designated percentage of U.S. intellectual property.