According to Bank of America analysts, South Korea is currently one of the few economies worldwide experiencing a productivity increase attributed to artificial intelligence. However, they caution that ongoing tensions between the U.S. and China regarding semiconductor technology might hinder this growth.
The semiconductor sector is crucial for South Korea, representing 17% of its exports. A recent report from Bank of America Global Research highlights that South Korea has emerged as a primary beneficiary of the AI surge, with exports increasing by over 50% year-over-year. Analysts forecast that the nation’s substantial investments in AI research and development, alongside a rise in AI-related patents, will bolster its standing in AI utilization over the long term.
Despite these positive trends, potential geopolitical conflicts could impact the semiconductor supply chain, particularly the escalating U.S.-China tensions, which may pose obstacles to AI advancements in South Korea. While the country has managed to diversify its chip exports beyond China to other regions, the report notes that China and Hong Kong accounted for over 30% of its chip exports in 2023, with comparable figures for exports to the U.S.
The analysts warn that if geopolitical issues intensify, 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.
Moreover, South Korean chip manufacturers rely on China for essential chipmaking components and equipment. Disruptions in the supply chain due to rising tensions would complicate the ability of South Korean companies to procure the tools necessary for chip production.
The U.S. has reportedly requested that South Korea limit its exports of equipment and technology used in manufacturing memory chips and advanced logic chips to China. South Korean officials are considering this request, weighing its potential impact on major firms like Samsung and SK Hynix, which operate within China, South Korea’s largest trading partner.
Additionally, the Biden administration is said to be contemplating the application of an export control known as the foreign direct product rule on allies that persist in supplying chipmaking machinery and technology to China. This regulation would prohibit the export of any product to a country if it incorporates a certain percentage of U.S.-origin intellectual property.