Bank of America analysts note that South Korea is experiencing one of the few productivity increases globally due to artificial intelligence, although U.S.-China tensions regarding semiconductors may pose a risk to its growth.
The semiconductor sector constitutes 17% of South Korea’s exports, and the country has become a significant beneficiary of the AI surge, with exports rising by over 50% in the past year, according to a report from Bank of America Global Research. The analysts anticipate that ongoing investment in AI research and development, along with a growing number of AI-related patents, will continue to bolster South Korea’s AI capabilities in the future.
However, they caution that escalating geopolitical tensions, particularly between the U.S. and China, could negatively impact the semiconductor supply chain, which would challenge the advancement of AI in South Korea. Although South Korea has worked to diversify its chip exports beyond China, over 30% of its chip exports in 2023 still went to China and Hong Kong, with a similar amount going to the U.S.
If tensions rise further, and if the U.S. imposes more trade restrictions on advanced or AI-related chip exports to China, the impact on South Korean memory chip exports could be significant, the analysts warned.
Moreover, South Korean semiconductor manufacturers rely on China for certain components and equipment necessary for chip production. Should tensions disrupt this supply chain, it could hinder their ability to obtain essential tools for manufacturing.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technology for producing memory chips and advanced logic chips, specifically those beyond 14-nanometer and DRAM memory chips above 18-nanometer. South Korean officials are evaluating this request due to potential impacts on major companies like Samsung and SK Hynix, which have substantial operations in China, its largest trading partner.
Meanwhile, the Biden administration is said to be considering employing an export control measure known as the foreign direct product rule against allies that continue to supply chipmaking tools to China. This rule would prohibit the export of any products that are produced with a certain percentage of U.S. intellectual property components to any country.