Bank of America analysts have noted that South Korea is one of the few economies globally experiencing a productivity surge due to artificial intelligence, although rising tensions between the U.S. and China concerning semiconductor technology may hinder its growth.
According to a report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s total exports. The country has reportedly been the largest beneficiary of the AI expansion, boasting a year-over-year increase of over 50% in exports. Analysts are optimistic about South Korea’s long-term prospects, citing its substantial investments in AI research and development along with an increasing number of AI-related patents that may enhance its status in AI adoption.
Despite this positive outlook, analysts warned that potential geopolitical tensions could negatively impact the semiconductor supply chain, particularly the escalating conflict between the U.S. and China. Although South Korea has been diversifying its chip exports away from China to other regions, over 30% of its chip exports were still directed to China and Hong Kong in 2023, with similar figures for exports to the U.S.
The analysts cautioned that if geopolitical tensions escalate further and the U.S. introduces additional trade restrictions on advanced or AI-related chip exports to China, it could significantly affect South Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for various components and equipment essential for chip production. Disruptions in the supply chain due to geopolitical strains would complicate access to the necessary tools for these manufacturers.
The U.S. has allegedly requested that South Korea impose restrictions on exports of equipment and technology utilized for manufacturing memory chips and advanced logic chips, specifically those exceeding 14-nanometer technology and DRAM chips beyond 18-nanometers. South Korean officials are reportedly deliberating on this request, considering the possible repercussions for major domestic firms like Samsung and SK Hynix, which have significant operations in China.
In a related development, the Biden administration is said to be contemplating the use of an export control mechanism known as the foreign direct product rule on allied nations that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of any product to any country if it is produced with a specified percentage of U.S. intellectual property.