Bank of America analysts have noted that South Korea is among the few economies worldwide currently experiencing a productivity surge linked to artificial intelligence. However, they caution that rising tensions between the U.S. and China regarding semiconductors could present challenges to South Korea’s growth trajectory.
The semiconductor sector constitutes 17% of South Korea’s total exports, and the country has been identified as a significant beneficiary of the AI expansion, with exports soaring over 50% year-over-year, according to a report from Bank of America Global Research. Analysts believe that South Korea’s robust investment in AI research and development, coupled with an increasing number of AI-related patents, will enhance its standing in AI adoption over the long term.
Despite this optimistic outlook, analysts warn that escalating geopolitical tensions could impact the semiconductor supply chain. Particularly, the ongoing conflict between the U.S. and China poses a potential threat to AI progress in South Korea. While the country has successfully diversified its chip exports beyond China to other regional markets, data shows that China and Hong Kong accounted for over 30% of South Korea’s chip exports in 2023, with exports to the U.S. being approximately equal.
Should the geopolitical situation worsen, and if the U.S. enforces further trade restrictions on advanced or AI-sensitive chip exports to China, analysts predict it could have a detrimental effect on South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers are reliant on China for certain chipmaking materials and machinery. If geopolitical tensions disrupt this supply chain, it could complicate the ability of South Korean firms to acquire the necessary tools to produce chips.
Reports indicate that the U.S. has requested South Korea to limit its exports to China of equipment and technology needed for manufacturing memory chips and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM chips over 18-nanometer. South Korean authorities are reportedly deliberating on the U.S.’s request due to potential implications for major domestic firms like Samsung and SK Hynix, which operate extensively in China, South Korea’s largest trading partner.
Additionally, the Biden administration is reportedly contemplating the implementation of export controls, specifically using the foreign direct product rule on allies that continue to supply chipmaking tools and equipment to China. This rule prohibits the export of any product to any nation if it has been produced using a specific percentage of U.S. intellectual property.