Bank of America analysts have noted that South Korea is uniquely positioned to benefit from a productivity surge attributed to artificial intelligence. However, growing tensions between the U.S. and China regarding semiconductor supplies may pose a significant threat to this growth.
According to a report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports, and the nation has emerged as a primary beneficiary of the recent AI boom, witnessing a more than 50% year-over-year increase in exports. Analysts believe that South Korea’s substantial investments in AI research and development, along with a rising number of AI-related patents, will continue to enhance its status in AI adoption.
Nonetheless, the report cautioned that geopolitical tensions could impact the semiconductor supply chain, particularly in light of the escalating U.S.-China rivalry. Despite South Korea’s efforts to diversify its chip exports beyond China, approximately 30% of its chip exports in 2023 were directed toward China and Hong Kong, with exports to the U.S. mirroring this figure.
The analysts warned that if U.S. geopolitical tensions worsen and further trade restrictions on advanced or AI-related chips destined for China are implemented, it could severely impact South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for vital chipmaking components and equipment. Any disruptions in the supply chain due to rising tensions could hinder the ability of South Korean companies to acquire the necessary tools for chip production.
Reports indicate that the U.S. has requested South Korea to impose limits on exports to China of equipment and technology required for manufacturing memory chips and advanced logic chips, particularly those that are more sophisticated than 14-nanometer and DRAM chips exceeding 18-nanometer technology. South Korean officials are reportedly considering this request, mindful of the potential ramifications for key domestic firms such as Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
Moreover, the Biden administration is contemplating the application of an export control mechanism known as the foreign direct product rule against allies who continue to supply chipmaking equipment to China. This rule would prevent the export of any goods to any country if they incorporate a specified percentage of U.S. intellectual property components in their manufacturing process.