South Korea is experiencing one of the few productivity boosts globally from artificial intelligence, but analysts from Bank of America warn that escalating U.S.-China tensions over the semiconductor industry could hinder this growth.
According to a Global Research report from Bank of America, the semiconductor sector represents 17% of South Korea’s exports, with the country being a major beneficiary of the AI boom, seeing export growth surpass 50% year-over-year. The report suggests that South Korea’s significant investments in AI research and development, along with an increasing number of AI-related patents, are likely to strengthen its leadership in AI adoption over the long term.
However, the analysts note that geopolitical tensions could negatively impact the semiconductor supply chain, particularly heightened tensions between the U.S. and China, creating challenges for AI expansion in South Korea. Despite diversifying its chip exports away from China, over 30% of South Korea’s chip exports in 2023 still went to China and Hong Kong, with a similar proportion heading to the U.S.
The report further states that any escalation in geopolitical tensions and potential U.S. trade restrictions on advanced or AI-related chip exports to China could have a serious impact on South Korean memory semiconductor exports.
Additionally, South Korean chip manufacturers are reliant on China for some components and equipment necessary for chip production. Disruptions in this supply chain due to geopolitical issues would complicate the ability of South Korean companies to acquire essential manufacturing tools.
The U.S. has reportedly urged South Korea to limit exports of chipmaking technology and equipment to China, targeting advanced logic chips and DRAM memory chips. South Korean officials are considering the U.S. request, aware of the potential impacts on major firms such as Samsung and SK Hynix, which have significant operations in China, the country’s largest trading partner.
In parallel, the Biden administration is contemplating the implementation of an export control policy that would restrict allies from selling chipmaking tools to China. This policy would prevent any goods from being exported to any nation if they are produced using a certain percentage of U.S. intellectual property.