South Korea is one of the few economies currently experiencing a productivity increase driven by artificial intelligence, though analysts at Bank of America warn that rising tensions between the U.S. and China regarding semiconductor technologies could hinder its growth.
According to a Bank of America Global Research report, the semiconductor sector constitutes 17% of South Korea’s exports, and the nation has emerged as a leading beneficiary of the AI surge, with exports rising by more than 50% year-over-year. The report suggests that South Korea’s substantial investments in AI research and development, coupled with an increasing number of AI-related patents, should enhance its position in AI adoption in the long run.
Nonetheless, analysts caution that geopolitical tensions could impact the supply chain for semiconductors, particularly due to increasing U.S.-China friction, which could pose significant challenges to South Korea’s AI development. Although South Korea has worked to diversify its chip exports away from China to other regions, China and Hong Kong still accounted for over 30% of its chip exports in 2023, with exports to the U.S. making up a similar proportion.
Bank of America’s analysts highlighted that if geopolitical tensions escalate and the U.S. imposes further trade restrictions on the export of advanced or AI-related chips to China, it could severely affect South Korea’s memory semiconductor exports. Additionally, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Should tensions disrupt the supply chain, it would complicate the procurement of essential tools for these manufacturers.
Reports indicate that the U.S. has requested South Korea to limit exports of equipment and technology used in the production of memory chips and advanced logic chips to China, particularly those exceeding 14-nanometer in technology for logic chips and 18-nanometer for DRAM memory chips. South Korean officials are reportedly considering this request due to potential impacts on major domestic firms such as Samsung and SK Hynix, both of which have significant operations in China, the country’s largest trading partner.
In a related context, the Biden administration is contemplating the implementation of export controls, including the foreign direct product rule, that would restrict allies from supplying chipmaking tools and equipment to China. This rule would prevent the export of any goods from any country if they are manufactured using a certain percentage of U.S. intellectual property.