South Korea stands out as one of the few economies benefiting from a productivity surge attributed to artificial intelligence, although ongoing tensions between the U.S. and China regarding semiconductor technologies may pose a threat to its growth, according to analysts at Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and the nation is noted as a major beneficiary of the AI boom, with exports experiencing a year-over-year increase of over 50%. Bank of America Global Research anticipates that South Korea’s significant investments in AI research and development, coupled with a rise in AI-related patents, will enhance its AI adoption further.
Nevertheless, analysts caution that escalating geopolitical tensions could impact the semiconductor supply chain, particularly the friction between the U.S. and China, which presents challenges for AI growth in South Korea. While South Korea has diversified its chip exports, more than 30% of these exports were directed to China and Hong Kong in 2023, similar to the share exported to the U.S.
The analysts noted that should geopolitical issues intensify and the U.S. imposes stricter trade measures on advanced or AI-related chip exports to China, it could significantly affect South Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for certain materials and equipment necessary for chip production. Disruptions in the supply chain due to rising tensions would hinder South Korean companies’ ability to acquire essential tools for chip manufacturing.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technologies used in producing memory chips and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly evaluating this request, considering the potential impacts on major domestic firms like Samsung and SK Hynix, which have substantial operations in China, their largest trading partner.
In parallel, the Biden administration is reportedly contemplating the application of an export control known as the foreign direct product rule on allies that continue to provide chipmaking tools and equipment to China. This regulation would restrict the export of any goods to a country if they are manufactured using a defined percentage of U.S. intellectual property components.