South Korea stands out as one of the few economies globally experiencing a productivity increase attributed to artificial intelligence. However, rising tensions between the U.S. and China concerning semiconductor technology may pose challenges for its economic growth, according to analysts at Bank of America.
The semiconductor sector constitutes 17% of South Korea’s exports, and the nation has emerged as a significant beneficiary of the AI surge, with exports rising over 50% year-on-year, as noted in a report by Bank of America Global Research. Analysts believe that South Korea’s substantial investments in AI research and development, alongside a growing portfolio of AI-related patents, will enhance its standing in AI adoption over the long term.
Despite this positive outlook, analysts caution that “potential geopolitical tensions could weigh on the semiconductors supply chain,” particularly due to escalating conflicts between the U.S. and China, which could hinder AI growth in South Korea. Although South Korea has made efforts to diversify its chip exports away from China to other regions, over 30% of its chip exports still went to China and Hong Kong in 2023, with shipments to the U.S. being similarly substantial.
Should geopolitical conflicts intensify and the U.S. implement further trade restrictions on advanced or AI-related chip exports to China, this could severely affect South Korea’s memory semiconductor exports, according to Bank of America analysts.
Moreover, South Korean chip makers rely on China for various chip manufacturing components and equipment. Disruptions caused by geopolitical tensions could complicate access to the 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, specifically those more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean authorities are reportedly deliberating over this request, considering the potential consequences for major domestic firms such as Samsung and SK Hynix, which have operations in China, the country’s largest trading partner.
Additionally, the Biden administration is contemplating the implementation of an export control known as the foreign direct product rule on allies that continue to supply chipmaking tools and equipment to China. This rule would prohibit the export of any product to any country if it is produced with a specific percentage of U.S. intellectual property components.