Bank of America analysts have noted that South Korea is one of the few countries experiencing a productivity increase due to artificial intelligence (AI), though tensions between the U.S. and China over semiconductor chips may pose a risk to this growth.
According to a report from Bank of America Global Research, semiconductors represent 17% of South Korea’s exports, and the nation has greatly benefited from the AI boom with exports soaring over 50% compared to the previous year. Analysts believe that the country’s significant investment in AI research and development, along with an increasing number of AI-related patents, will further enhance its position in AI adoption.
However, the analysts caution that potential geopolitical tensions could impact the semiconductor supply chain, particularly the escalating strain between the U.S. and China, which could challenge AI growth in South Korea. While South Korea has shifted its chip exports away from China to other regions, China and Hong Kong still constitute over 30% of its chip exports as of 2023, with exports to the U.S. being similar.
Analysts warn that if geopolitical tensions escalate and the U.S. imposes further trade restrictions on advanced chips exported to China, it could severely affect South Korea’s memory semiconductor exports. Furthermore, South Korean chip manufacturers rely on China for various chipmaking components and equipment, making supply chain disruptions a significant concern.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology used in the production of memory chips and advanced logic chips—specifically those with technology beyond 14-nanometers and DRAM memory chips exceeding 18-nanometers. South Korean officials are reportedly evaluating this request due to potential impacts on major firms like Samsung and SK Hynix, which have operations in China, their largest trading partner.
Additionally, the Biden administration is said to be contemplating the implementation of an export control measure known as the foreign direct product rule against allies that continue to supply chipmaking tools and equipment to China. This rule would prohibit the export of goods to any country if they are made with a certain percentage of U.S. intellectual property components.