South Korea stands out as one of the few economies experiencing a productivity increase due to artificial intelligence, although analysts from Bank of America have noted that rising tensions between the U.S. and China regarding semiconductor technology could hinder growth prospects.
According to a report from Bank of America Global Research, the semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as a significant beneficiary of the AI boom, with exports rising over 50% year-on-year. Analysts believe that South Korea’s substantial investment in AI research and development, coupled with an increasing number of AI-related patents, will enhance its position in AI adoption over the long term.
However, the report indicates that escalating geopolitical tensions, particularly between the U.S. and China, could negatively impact the semiconductor supply chain, posing a challenge to South Korea’s AI growth. Although South Korea has diversified its chip exports beyond China, over 30% of its chip exports in 2023 were still directed towards China and Hong Kong, with similar levels exported to the United States.
Bank of America analysts cautioned that if U.S.-China tensions worsen and additional trade restrictions are imposed by the U.S. on high-tech and AI-related chip exports to China, it could seriously affect South Korean memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for certain chipmaking components and equipment. Disruptions in the supply chain due to heightened tensions would complicate South Korean companies’ access to the necessary tools for chip production.
The U.S. has reportedly requested South Korea to limit exports of equipment and technology used to manufacture advanced memory chips and logic chips, particularly those exceeding 14-nanometer processes, as well as DRAM memory chips beyond the 18-nanometer threshold. South Korean officials are reportedly considering this request, mindful of potential impacts on major firms such as Samsung and SK Hynix, both of 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 known as the foreign direct product rule, which would affect allies that continue to sell chipmaking tools and equipment to China. This rule would prohibit the export of any goods to any nation if they are produced with a certain percentage of U.S. intellectual property.