Bank of America analysts have noted that South Korea is one of the few countries experiencing a productivity surge driven by artificial intelligence. However, they caution that rising tensions between the U.S. and China over semiconductor issues could impede this growth.
The semiconductor sector represents a significant 17% of South Korea’s exports, with the country being a major beneficiary of the AI boom, showcasing a remarkable increase of over 50% in exports year-over-year. The analysts emphasized that South Korea’s substantial investments in AI research and development, as well as an increase in AI-related patents, are likely to enhance its position in AI adoption in the long run.
Nonetheless, the report highlighted that escalating geopolitical tensions, particularly between the U.S. and China, could impact the semiconductor supply chain. Despite efforts to diversify chip exports away from China, over 30% of South Korea’s semiconductor exports in 2023 were sent to China and Hong Kong, with exports to the U.S. reaching comparable levels.
The analysts warned that if U.S.-China tensions heighten and the U.S. enforces further trade restrictions on the export of advanced or AI-related chips to China, it could severely affect South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for key components and equipment necessary for chip production. Any disruption in the supply chain due to heightened tensions could hinder these firms’ access to essential manufacturing tools.
Reports indicate that the U.S. has urged South Korea to limit exports of chip-making technology and equipment to China, particularly for advanced logic chips greater than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are currently evaluating this request, considering potential repercussions for major companies like Samsung and SK Hynix, which maintain operations in China, the country’s largest trading partner.
Simultaneously, the Biden administration is contemplating the implementation of an export control known as the foreign direct product rule. This rule would restrict the export of any product made using a specified percentage of U.S. intellectual property components to any country, targeting allies that continue to supply chipmaking tools and equipment to China.