South Korea is experiencing a unique increase in productivity driven by artificial intelligence, but growing tensions between the U.S. and China regarding semiconductor production may pose risks to its economic growth, according to analysts from Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and it has notably benefited from the AI boom, with exports rising by over 50% year-over-year, as reported by Bank of America Global Research. Analysts indicated that South Korea’s substantial investment in AI research and development, along with an increasing number of AI-related patents, is likely to enhance its position in AI adoption in the long term.
Nevertheless, the analysts warned that geopolitical tensions could impact the semiconductor supply chain, particularly amid the escalating conflict between the U.S. and China. Despite South Korea’s efforts to shift its chip exports away from China to other regions, the report reveals that China and Hong Kong accounted for more than 30% of its chip exports in 2023, with exports to the U.S. being roughly the same.
Bank of America analysts cautioned that if geopolitical tensions heighten and the U.S. enacts further trade restrictions on advanced or AI-related chip exports to China, it could severely damage South Korea’s memory semiconductor exports.
Furthermore, South Korean chip manufacturers rely on China for certain chipmaking components and equipment. Disruptions in the supply chain due to these tensions could complicate the acquisition of essential tools for chip production.
The U.S. has reportedly requested that South Korea impose restrictions on exports to China of equipment and technology related to memory chips and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are considering this request, weighing the potential repercussions for key firms like Samsung and SK Hynix, which operate in China, its largest trading partner.
Meanwhile, the Biden administration is reportedly contemplating the implementation of an export control measure known as the foreign direct product rule on allies that continue to sell chipmaking tools and equipment to China. This rule would prohibit the export of goods to any country if they are produced with a certain percentage of U.S. intellectual property.