Bank of America analysts have highlighted that South Korea is one of the few economies benefiting from a productivity boost driven by artificial intelligence. However, tensions between the U.S. and China regarding semiconductor chips may pose challenges to this growth.
According to the latest report, the semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as a significant benefactor of the AI surge, reporting a more than 50% increase in exports year-over-year. Analysts anticipate that South Korea’s substantial investments in AI research and development, along with a rising number of AI-related patents, will enhance its standing in AI integration over time.
Nonetheless, the report warns that geopolitical tensions could impact the semiconductor supply chain, particularly due to escalating conflicts between the U.S. and China. Despite diversifying chip exports to other regions, China and Hong Kong still accounted for over 30% of South Korea’s chip exports in 2023, with exports to the U.S. being roughly equivalent.
Bank of America analysts noted that if geopolitical tensions worsen and the U.S. enforces additional trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports. Furthermore, South Korean chip manufacturers rely on China for essential chipmaking components and equipment, making it harder for them to obtain necessary tools if these tensions disrupt the supply chain.
Reports indicate the U.S. has requested South Korea to limit exports to China of technology and equipment used to manufacture memory chips and advanced logic chips, particularly those exceeding 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are contemplating this request due to potential impacts on major companies such as Samsung and SK Hynix, which have significant operations in China, South Korea’s largest trading partner.
In addition, the Biden administration is reportedly considering implementing export controls known as the foreign direct product rule on allies that continue to supply chip manufacturing tools and equipment to China. This rule would prevent the export of goods manufactured with a certain percentage of U.S. intellectual property to any country.