Bank of America analysts have noted that South Korea is uniquely benefiting from a productivity increase linked to artificial intelligence (AI). However, they also caution that rising tensions between the U.S. and China regarding semiconductor technology could threaten this growth.
The semiconductor sector represents 17% of South Korea’s exports, and according to a Bank of America Global Research report, the country has seen a substantial 50% rise in exports attributed to the AI surge. Analysts believe that South Korea’s significant investment in AI research and development, alongside a growing number of AI-related patents, positions it favorably for continued AI expansion.
However, the report highlights that geopolitical issues may increasingly impact the semiconductor supply chain, particularly due to escalating U.S.-China tensions. Although South Korea has diversified its chip exports to other regions, more than 30% of its chip exports in 2023 still went to China and Hong Kong, a number roughly equal to that of exports to the U.S.
The Bank of America analysts warned that if the U.S. intensifies trade restrictions on advanced chips destined for China, South Korea’s memory semiconductor exports could suffer significantly. Furthermore, South Korean chip manufacturers rely on China for various components and equipment essential for chip production, making them vulnerable to supply chain disruptions amid rising tensions.
The U.S. has reportedly requested South Korea to limit exports to China of specific equipment used in the production of memory chips and advanced logic chips, especially those more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are considering this request due to potential impacts on major local firms like Samsung and SK Hynix, which have significant operations in China, its largest trade partner.
In parallel, the Biden administration is evaluating the implementation of an export control measure known as the foreign direct product rule, aimed at allies that supply chipmaking tools to China. This regulation would prevent the export of goods to any nation if they are manufactured with a certain percentage of U.S. intellectual property.