Bank of America analysts stated that South Korea is among the few economies experiencing a productivity increase due to artificial intelligence, though ongoing tensions between the U.S. and China over semiconductor supplies could hinder its growth.
According to a report from Bank of America Global Research, the semiconductor sector comprises 17% of South Korea’s exports, and the nation has emerged as the largest beneficiary of the AI surge, witnessing over a 50% rise in exports compared to the previous year. Analysts predict that South Korea’s substantial investments in AI research and development, alongside a rising number of AI-related patents, will enhance its standing in AI adoption in the long run.
However, the analysts warned that escalating geopolitical tensions could impact the semiconductor supply chain, particularly due to the increasing discord between the U.S. and China—an issue that could pose challenges for AI growth in South Korea. Although the country has been diversifying its chip exports away from China, reports indicate that over 30% of its chip exports in 2023 still went to China and Hong Kong, with similar figures directed towards the U.S.
The analysts noted that if U.S.-China tensions intensify and the U.S. enforces additional trade restrictions on advanced or AI-related chip exports to China, this could severely affect South Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for certain components and equipment needed for chip production. Disruptions in these supply chains due to geopolitical strife could hinder these companies’ access to essential manufacturing tools.
Reports suggest that the U.S. has requested South Korea to limit exports to China of equipment and technology critical for producing memory chips and advanced logic chips—specifically those more advanced than 14-nanometer logic chips and DRAM memory chips beyond 18-nanometer. South Korean authorities are reportedly deliberating over this request, considering the potential impact on major South Korean companies like Samsung and SK Hynix, which have significant operations in China, the country’s largest trading partner.
Additionally, the Biden administration is reportedly contemplating the application of an export control known as the foreign direct product rule on allies that persist in selling chipmaking tools and equipment to China. This rule stipulates that any product cannot be exported to any country if it contains a specific percentage of U.S. intellectual property.