Bank of America analysts have highlighted that South Korea is among the few economies experiencing a productivity increase due to artificial intelligence (AI). However, they noted that tensions between the U.S. and China concerning semiconductor supplies could pose significant challenges for the nation’s growth.
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The semiconductor sector represents 17% of South Korea’s exports, with the country benefiting greatly from the AI surge, seeing over a 50% year-over-year increase in exports. Bank of America Global Research reports suggest that South Korea’s substantial investment in AI research and a rising number of AI-related patents will enhance its standing in AI adoption.
Yet, analysts warn that escalating geopolitical tensions, particularly between the U.S. and China, may impact the semiconductor supply chain, potentially hindering AI growth in South Korea. Although the country has shifted some of its chip exports away from China to other regions, over 30% of its chip exports in 2023 still went to China and Hong Kong, with exports to the U.S. being similarly significant.
If tensions increase and the U.S. enacts further trade restrictions on advanced or AI-related chip exports to China, analysts predict a drastic impact on South Korea’s memory chip exports.
Additionally, South Korean chip manufacturers rely on China for vital components and tools needed for chip production, meaning that any disruptions in the supply chain could hinder their manufacturing capabilities.
The U.S. has reportedly requested South Korea to limit exports of semiconductor-making equipment and technology to China, specifically targeting advanced logic chips and DRAM memory chips that exceed certain technological thresholds. South Korean officials are contemplating the request, weighing the potential impact on major firms like Samsung and SK Hynix, which maintain operations in China, South Korea’s largest trading partner.
Moreover, the Biden administration is considering applying an export control mechanism known as the foreign direct product rule on allies that continue to supply chipmaking tools to China. This rule prohibits the export of any product to any nation if it incorporates a certain percentage of U.S. intellectual property.