South Korea stands out as one of the few economies benefiting from a productivity surge driven by artificial intelligence, although escalating tensions between the U.S. and China regarding semiconductor technology could hinder its growth, according to analysts from Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as a key player in the AI revolution, with exports rising more than 50% in the past year. Analysts from Bank of America Global Research noted that South Korea’s substantial investments in AI research and development, alongside an increasing number of AI-related patents, are likely to enhance its AI adoption in the long term.
Nevertheless, potential geopolitical tensions may impact the semiconductor supply chain, particularly due to the intensifying conflict between the U.S. and China, which presents a challenge for AI progress in South Korea. Despite efforts to diversify its chip exports from China to other areas, China and Hong Kong still accounted for over 30% of South Korea’s chip exports in 2023, while exports to the U.S. were similarly significant.
Bank of America analysts warned that if geopolitical 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 various chipmaking components and equipment. Disruption in supply chains due to geopolitical issues would complicate the acquisition of necessary tools for chip production.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technology used for manufacturing memory chips and advanced logic chips, particularly those more advanced than 14-nanometer and DRAM memory chips above 18-nanometer. South Korean officials are evaluating this request, considering the potential repercussions on major companies such as Samsung and SK Hynix, which maintain operations in China, South Korea’s largest trading partner.
Meanwhile, the Biden administration is contemplating the application of an export control known as the foreign direct product rule against allies that continue to provide chipmaking tools and equipment to China. This rule prohibits the export of any goods to any country if they contain a specified percentage of U.S. intellectual property.