Bank of America analysts have indicated that South Korea stands out as one of the few global economies experiencing a productivity increase attributed to artificial intelligence, although U.S.-China tensions regarding semiconductor technology may pose risks to its ongoing growth.
The semiconductor sector represents 17% of South Korea’s exports, with the nation reportedly being a significant beneficiary of the AI surge, as its exports rose over 50% year-over-year, as detailed in a Bank of America Global Research report. Analysts predict that the country’s substantial investment in AI research and development, coupled with a rising number of AI-related patents, will enhance South Korea’s position in AI adoption in the long run.
However, the analysts caution that “potential geopolitical tensions could weigh on the semiconductor supply chain,” particularly given the escalating strife between the U.S. and China, which could threaten AI advancements in South Korea. Despite efforts to diversify chip exports away from China, over 30% of South Korea’s semiconductor exports in 2023 were directed to China and Hong Kong, with exports to the U.S. being similarly substantial.
Should U.S.-China tensions intensify, particularly with the U.S. imposing further trade restrictions on advanced or AI-related chip exports to China, it could severely impact the memory semiconductor market in South Korea, the analysts warned.
Furthermore, South Korean chip manufacturers rely on China for essential chipmaking components and equipment. Disruptions in these supply chains could hinder South Korean companies’ ability to acquire necessary tools for chip production.
South Korea has reportedly been approached by the U.S. to limit exports to China of equipment and technology used in producing memory chips and advanced logic chips, specifically those that exceed 14-nanometer and 18-nanometer thresholds, respectively. Officials in South Korea are considering the U.S. request amid potential consequences for major South Korean companies like Samsung and SK Hynix, which have operations in China, the country’s largest trading partner.
Additionally, the Biden administration is exploring the application of an export control known as the foreign direct product rule on allies that continue to sell chipmaking tools and equipment to China. This regulation prohibits the export of any goods to any nation if they are manufactured with a certain percentage of U.S. intellectual property components.