South Korea is among the few countries experiencing productivity gains from artificial intelligence, yet the ongoing tensions between the U.S. and China regarding semiconductor chips may pose a risk to its growth, according to analysts from Bank of America.
A report from Bank of America Global Research highlights that the semiconductor sector makes up 17% of South Korea’s exports. The country has emerged as the leading beneficiary of the AI boom, with exports witnessing a year-over-year increase of over 50%. Analysts noted that South Korea’s substantial investments in AI research and development, coupled with an increasing number of AI-related patents, will likely enhance its position in AI adoption in the future.
Despite this promising outlook, analysts warned that geopolitical issues could impact the semiconductor supply chain, particularly due to rising tensions between the U.S. and China. Although South Korea has diversified its chip exports beyond China, the report indicates that China and Hong Kong still accounted for over 30% of its chip exports in 2023, with exports to the U.S. being roughly the same.
Bank of America analysts cautioned that if geopolitical tensions intensify and the U.S. implements further trade restrictions on advanced chips and AI-related exports to China, it could deal a significant blow to South Korea’s memory semiconductor exports.
South Korean semiconductor manufacturers also rely on China for various chipmaking components and equipment. Any disruption in this supply chain could hinder the ability of South Korean companies to obtain the necessary tools for chip production.
Reportedly, the U.S. has asked South Korea to limit exports to China of equipment and technology for producing memory chips and advanced logic chips, specifically those more sophisticated than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are considering the U.S. request, as it may have significant implications for major South Korean companies like Samsung and SK Hynix, which have operations in China, their largest trading partner.
In parallel, the Biden administration is reportedly looking into using an export control mechanism known as the foreign direct product rule against allies that continue to sell chipmaking tools and equipment to China. This regulation would prohibit the export of any product to any country if it contains a certain percentage of components derived from U.S. intellectual property.