Bank of America analysts indicate that South Korea is uniquely benefiting from a productivity increase linked to artificial intelligence, but the ongoing tensions between the U.S. and China over semiconductor technology could potentially hinder this growth.
The semiconductor sector plays a significant role in South Korea’s economy, constituting 17% of the nation’s exports. A recent report highlighted that South Korea has been the top beneficiary of the AI surge, with exports rising by over 50% year-on-year. Analysts believe that the country’s substantial investments in AI research and development, along with an increasing number of AI-related patents, will enhance its capabilities in AI technology over the long term.
However, the analysts also warned that escalating geopolitical tensions, particularly between the U.S. and China, could negatively impact the semiconductor supply chain and, consequently, AI development in South Korea. Despite efforts to diversify chip exports to other regions, over 30% of South Korea’s chip exports were directed to China and Hong Kong in 2023, with another significant portion going to the U.S.
The report suggests that if U.S.-China relations deteriorate further and the U.S. enacts additional trade restrictions on the export of advanced chips and components to China, there could be a severe impact on South Korea’s memory semiconductor exports. South Korean manufacturers also rely on China for various chipmaking tools and components, and any disruption in this supply chain could complicate chip production.
In response to these challenges, the U.S. is reportedly urging South Korea to limit the export of chipmaking technologies and equipment to China, particularly for advanced memory chips and logic chips that exceed certain specifications. South Korean officials are reportedly considering this request, weighing the potential implications on major companies such as Samsung and SK Hynix, which have significant operations in China.
Additionally, the Biden administration is reportedly contemplating the enforcement of an export control rule on allies that continue to sell chipmaking equipment to China. This rule would restrict the export of products manufactured with a certain percentage of U.S. intellectual property components, further complicating the landscape for South Korean firms.