South Korea is one of the few economies globally experiencing a productivity increase due to artificial intelligence, though U.S.-China tensions concerning semiconductors could hinder its growth, according to analysts at Bank of America.
The semiconductor industry constitutes 17% of South Korea’s exports, and the nation has emerged as a major beneficiary of the AI surge, with exports rising more than 50% compared to last year. Bank of America Global Research highlights that South Korea’s substantial investment in AI research and development, along with a rising number of AI-related patents, is likely to enhance its trajectory in AI usage over time.
However, analysts caution that geopolitical tensions could impact the semiconductor supply chain, particularly the escalating discord between the U.S. and China, which presents a threat to AI advancement in South Korea. While South Korea has made efforts to diversify its chip exports away from China, the report notes that over 30% of its chip exports in 2023 went to China and Hong Kong, with exports to the U.S. being similar.
Bank of America analysts warned that if geopolitical tensions intensify and the U.S. imposes further trade restrictions on the export of advanced or AI-related chips to China, this could severely affect South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for certain chipmaking components and equipment. Any disruption in this supply chain due to rising tensions would complicate efforts for South Korean companies to obtain the necessary tools for chip production.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology used to produce memory and advanced logic chips, specifically those more advanced than 14-nanometer logic chips and over 18-nanometer DRAM memory chips. South Korean officials are reportedly evaluating this request, considering the potential impact on major firms like Samsung and SK Hynix, which operate in China, the country’s largest trading partner.
Meanwhile, the Biden administration is reportedly contemplating implementing export controls known as the foreign direct product rule on allies that continue to supply chipmaking tools and equipment to China. This regulation would prevent the export of any goods to any country that are made with a certain percentage of U.S. intellectual property components.