Bank of America analysts have indicated that South Korea is one of the few economies globally experiencing a productivity increase due to artificial intelligence. However, they caution that rising tensions between the U.S. and China surrounding semiconductor technology could pose challenges to South Korea’s growth in this sector.
The semiconductor industry makes up 17% of South Korea’s exports, and the country has reportedly benefited significantly from the AI boom, with exports rising over 50% year-over-year, according to a report from Bank of America Global Research. Analysts believe that South Korea’s substantial investment in AI research and development, along with a growing patent portfolio in AI technologies, will enhance its position in AI adoption in the long term.
Despite these advancements, analysts warned that geopolitical tensions could impact the semiconductor supply chain, particularly the escalating rivalry between the U.S. and China, which may threaten AI growth in South Korea. While the country has successfully diversified its chip exports beyond China to other regions, China and Hong Kong accounted for more than 30% of South Korea’s chip exports in 2023, with exports to the U.S. being of a similar proportion.
Bank of America analysts noted that if geopolitical tensions intensify and the U.S. enacts further trade restrictions on advanced or AI-related chip exports to China, it could severely disrupt South Korea’s semiconductor exports, particularly in memory chips.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment needed in chip production. Disruptions in the supply chain due to these tensions could hinder South Korean firms’ ability to obtain essential tools for chip manufacturing.
The U.S. government has reportedly requested that South Korea limit exports to China of equipment and technology necessary for producing advanced logic chips (specifically those more advanced than 14-nanometer) and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly considering this request, factoring in potential impacts on major firms such as Samsung and SK Hynix, which have significant operations in China, South Korea’s largest trading partner.
Meanwhile, the Biden administration is contemplating the application of an export control measure known as the foreign direct product rule against allies that continue to sell chipmaking tools and equipment to China. This rule prohibits the export of any good to any country that incorporates a specified percentage of U.S. intellectual property in its manufacturing process.