South Korea is experiencing a surge in productivity attributed to artificial intelligence, but Bank of America analysts caution that escalating U.S.-China tensions over semiconductors could hinder this growth. The semiconductor industry is a significant contributor to the South Korean economy, representing 17% of the nation’s exports. A recent report from Bank of America Global Research highlights that South Korea stands as a leading beneficiary of the AI boom, with exports rising over 50% year-over-year. Analysts project that the country’s substantial investments in AI research and development, along with an increasing number of AI-related patents, will enhance its position as a leader in AI adoption.
However, the report raises concerns that geopolitical tensions could impact the semiconductor supply chain. The ongoing conflict between the U.S. and China poses a threat to South Korea’s AI growth. Although South Korea has diversified its chip exports away from China in recent years, over 30% of its chip exports still went to China and Hong Kong in 2023, with similar figures for exports to the U.S.
The analysts warn that if tensions escalate and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports. Additionally, South Korean chip manufacturers rely on China for essential components and equipment necessary for chip production. Disruptions in the supply chain could complicate the ability of South Korean companies to source the technology they need.
Reports indicate that the U.S. has requested South Korea to limit exports of equipment and technology used in the production of memory chips and advanced logic chips to China, specifically targeting chips more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are considering this request, mindful of the potential consequences for major firms like Samsung and SK Hynix, which have operations in China, its largest trading partner.
In parallel, the Biden administration is contemplating an export control measure known as the foreign direct product rule aimed at allies that continue to sell chipmaking tools and equipment to China. This rule would prohibit the export of any goods produced with a specified percentage of U.S. intellectual property to any country.