South Korea is among the few countries experiencing a productivity increase driven by artificial intelligence, but analysts from Bank of America warn that ongoing tensions between the U.S. and China regarding semiconductor technology could threaten its growth.
According to a Global Research report from Bank of America, the semiconductor sector accounts for 17% of South Korea’s exports, and the nation has emerged as the top beneficiary of the AI surge, with exports rising over 50% year-over-year. The report suggests that South Korea’s significant investments in AI research and development, along with a growing number of AI-related patents, are likely to enhance its position in AI adoption over time.
Despite these positive indicators, analysts caution that geopolitical conflicts may disrupt the semiconductor supply chain, particularly given the escalating tensions between the U.S. and China. While South Korea has diversified its chip exports beyond China to other regions, over 30% of its chip exports in 2023 still went to China and Hong Kong, with a similar percentage heading to the U.S.
Any increase in geopolitical tensions, especially if the U.S. imposes new trade restrictions on advanced or AI-related chip exports to China, could severely affect South Korea’s memory semiconductor exports, according to the analysts.
Additionally, South Korean chip manufacturers rely on China for various components and equipment necessary for chip production. Any disruption in these supply chains due to heightened tensions could impede South Korean companies’ access to essential production tools.
Reports indicate that the U.S. has urged South Korea to limit its exports of semiconductor manufacturing equipment and technology to China, especially for advanced logic chips exceeding 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly contemplating this request due to potential impacts on major corporations like Samsung and SK Hynix, which have significant operations in China, the country’s largest trading partner.
Furthermore, the Biden administration is reportedly exploring the implementation of an export control known as the foreign direct product rule against allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of any goods to a country if they are manufactured using a specified percentage of U.S. intellectual property components.