South Korea stands out as one of the few economies globally benefiting from productivity gains linked to artificial intelligence (AI), although rising U.S.-China tensions regarding semiconductors pose potential challenges to 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 major beneficiary of the AI surge, with export growth exceeding 50% year-over-year, as noted in a report by Bank of America Global Research. Analysts believe that the country’s significant investment in AI research and development and an increasing number of AI-related patents will enhance its status in the adoption of AI technologies over the long term.
Nonetheless, analysts caution that geopolitical tensions could impact the supply chain for semiconductors, particularly due to the escalating rivalry between the U.S. and China. While South Korea has successfully diversified its chip exports away from China, the report indicates that over 30% of its chip exports in 2023 were still directed to China and Hong Kong, with similar figures for exports to the U.S.
Bank of America analysts warned that if geopolitical tensions intensify, particularly if the U.S. enacts further trade restrictions on the export of advanced or AI-related chips to China, it could heavily impact South Korean memory chip exports.
Additionally, South Korean chip manufacturers rely on China for various chipmaking components and equipment. Disruptions in the supply chain caused by heightened tensions could hinder the ability of South Korean companies to access essential tools for chip production.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology critical for producing memory chips and advanced logic chips, particularly those that surpass 14-nanometer technology and DRAM memory chips exceeding 18-nanometer. South Korean officials are currently considering this request, given the potential consequences for major firms like Samsung and SK Hynix, which have operations in China, its largest trading partner.
In parallel, the Biden administration is reportedly looking into the application of an export regulation known as the foreign direct product rule. This rule prohibits the export of goods to any nation if they contain a specific percentage of U.S. intellectual property components, affecting allies that continue to sell chipmaking tools and equipment to China.