South Korea is experiencing a productivity increase driven by artificial intelligence, positioning itself as one of the few economies benefiting significantly from this technological leap. However, analysts from Bank of America warn that rising tensions between the U.S. and China regarding semiconductor chips could pose risks to the country’s growth.
The semiconductor sector represents 17% of South Korea’s total exports, leading the nation to emerge as a major beneficiary of the AI surge, with exports rising over 50% year-over-year, according to a report from Bank of America Global Research. Analysts are optimistic about South Korea’s commitment to investing in AI research and development, combined with a growing number of AI-related patents, believing this will enhance the country’s role in AI integration.
Nonetheless, analysts caution that escalating geopolitical tensions could impact the semiconductor supply chain, particularly due to the strained relationship between the U.S. and China. Although South Korea has started diversifying its chip exports away from China to other regions, China and Hong Kong accounted for more than 30% of South Korea’s chip exports in 2023, with exports to the U.S. reflecting a similar figure.
Bank of America analysts noted that if geopolitical tensions escalate and the U.S. enacts further trade restrictions on advanced or AI-related chip exports to China, it could drastically harm South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for essential components and equipment needed for chip production. Any disruption in this supply chain caused by geopolitical issues could complicate S. Korean companies’ ability to source the necessary tools for chip manufacturing.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technology crucial for producing memory chips and advanced logic chips, especially those with a technology level above 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean authorities are deliberating this request, considering potential consequences for major companies like Samsung and SK Hynix, which operate extensively in China—their largest trading partner.
In parallel, the Biden administration is contemplating the application of an export control measure known as the foreign direct product rule, targeting allied nations that continue to supply China with chip-making tools and equipment. This rule prohibits the export of any product manufactured with a certain percentage of U.S. intellectual property to any country.