According to Bank of America analysts, South Korea is among the few global economies experiencing a surge in productivity due to artificial intelligence, but growing tensions between the U.S. and China over semiconductor technology may hinder its growth.
The semiconductor sector plays a crucial role in South Korea’s economy, representing 17% of its exports. The country has benefited significantly from the AI boom, with exports rising over 50% year-over-year, as noted in a recent Bank of America Global Research report. Analysts predict that South Korea’s substantial investments in AI research and development, along with an increasing number of AI-related patents, will further bolster its position in AI utilization.
However, potential geopolitical issues could impact the semiconductor supply chain, particularly with the escalating conflicts between the U.S. and China. Despite South Korea diversifying its chip exports to other regions, over 30% of its chip exports were directed to China and Hong Kong in 2023, with a similar percentage going to the U.S.
Analysts warned that if geopolitical tensions worsen and the U.S. enforces stricter trade limitations on advanced or AI-related chip exports to China, South Korea’s memory semiconductor exports could face serious challenges.
Additionally, South Korean chip manufacturers rely on China for several essential components and equipment for chip production. Any disruption in these supply chains due to escalated tensions could hinder the ability of South Korean companies to acquire the necessary tools for production.
Reports indicate that the U.S. has urged South Korea to limit exports to China of equipment and technologies critical for manufacturing memory chips and advanced logic chips, particularly those more advanced than 14-nanometer and DRAM memory chips over 18-nanometer. South Korean authorities are reportedly considering the U.S. request due to potential impacts on major firms such as Samsung and SK Hynix, both of which have operations in China, South Korea’s largest trading partner.
Moreover, the Biden administration is reportedly contemplating the implementation of an export control known as the foreign direct product rule, which would affect allies continuing to supply chipmaking tools and equipment to China. This rule would prohibit the export of any goods to any country if they are produced using a certain percentage of U.S. intellectual property.