Bank of America analysts have indicated that South Korea stands out as one of the few countries experiencing a productivity surge driven by artificial intelligence (AI). However, they caution that ongoing tensions between the U.S. and China over semiconductor technologies could hinder South Korea’s growth potential.
The semiconductor sector represents 17% of South Korea’s exports, and according to a recent report from Bank of America Global Research, the country has emerged as the largest beneficiary of the AI boom, with exports rising over 50% compared to the previous year. Analysts believe that South Korea’s significant investments in AI research and development, alongside an increasing number of AI-related patents, will enhance its position in AI adoption in the future.
Despite these positives, analysts warn that geopolitical tensions could negatively impact the semiconductor supply chain. The friction between the U.S. and China poses a particular challenge for South Korea’s AI growth. Although South Korea has shifted its chip exports away from China towards other regions, over 30% of its chip exports in 2023 still went to China and Hong Kong, which is similar for exports to the U.S.
Should the geopolitical environment deteriorate further and the U.S. impose stricter trade restrictions on advanced or AI-related chip exports to China, it could significantly affect South Korea’s memory semiconductor exports, according to the analysts.
Moreover, South Korean chip manufacturers rely on China for certain components and equipment essential for chip production. Any supply chain disruptions arising from heightened tensions would complicate access to these necessary tools for South Korean companies.
In response to these concerns, the U.S. has reportedly asked South Korea to limit exports of chipmaking equipment and technology to China. This includes specific requests regarding advanced logic chips finer than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are considering this request, mindful of the potential impacts on major corporations like Samsung and SK Hynix, both of which have significant operations in China, South Korea’s largest trading partner.
Additionally, the Biden administration is contemplating the use of an export control measure known as the foreign direct product rule, which would restrict allies from selling chipmaking tools and equipment to China. This rule prohibits the export of any goods to any nation if those goods contain a specific percentage of U.S. intellectual property.