South Korea stands out as one of the few economies globally experiencing growth in productivity linked to artificial intelligence, though analysts from Bank of America caution that rising tensions between the U.S. and China over semiconductor supply chains could hinder this growth.
According to a report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports, and the country has emerged as a leading beneficiary of the AI revolution, with exports soaring over 50% year-over-year. The report highlights South Korea’s significant investments in AI research and development, alongside an increasing number of AI-related patents, which are expected to bolster its position in adopting AI technologies.
However, analysts warn that escalating geopolitical tensions could negatively impact the semiconductor supply chain. The U.S.-China dynamic is particularly concerning, given that more than 30% of South Korea’s chip exports were directed to China and Hong Kong in 2023, with a similar proportion of exports going to the U.S.
The analysts noted, “If geopolitical tensions intensify and the United States enforces additional trade restrictions on advanced or AI-related chip exports to China, it could severely impact memory semiconductor exports from South Korea.”
Moreover, South Korean semiconductor producers rely on China for certain components and equipment necessary for chip manufacturing. Disruptions in the supply chain due to heightened tensions could impede the ability of South Korean companies to acquire essential tools for chip production.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technology utilized in manufacturing both memory chips and advanced logic chips, specifically those more advanced than 14-nanometers and DRAM memory chips exceeding 18-nanometers. South Korean authorities are considering this request, weighing the potential implications for major corporations like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
In parallel, the Biden administration is contemplating applying an export control known as the foreign direct product rule to allies that continue to supply chipmaking tools and equipment to China. This regulation would prevent the export of any product to any country if it incorporates a specified percentage of U.S. intellectual property in its manufacturing.