Bank of America analysts have noted that South Korea is among the few economies globally experiencing a productivity increase due to artificial intelligence (AI). However, tensions between the U.S. and China over semiconductor technology may pose challenges to this growth.
South Korea’s semiconductor industry accounts for 17% of its exports. The country has reportedly been the largest beneficiary of the AI boom, with a year-over-year export increase exceeding 50%. Analysts anticipate that South Korea’s substantial investments in AI research and development, coupled with a rising number of AI-related patents, will bolster its position in the adoption of AI over the long term.
Nonetheless, the analysts caution that potential geopolitical tensions could negatively affect the semiconductor supply chain. They specifically highlight the impact of escalating U.S.-China tensions, which could hinder South Korea’s AI growth. Although South Korea has shifted some of its chip exports away from China to other regions, over 30% of its chip exports in 2023 still went to China and Hong Kong, with exports to the U.S. being similar.
Analysts from Bank of America expressed concern that if geopolitical tensions worsen and the U.S. enforces further trade restrictions on advanced or AI-related chip exports to China, it could significantly impair South Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for various chipmaking components and equipment. Any disruptions in the supply chain due to rising tensions could complicate access to essential tools for chip production.
The U.S. has reportedly urged South Korea to limit exports to China of certain equipment and technology required for producing memory chips and advanced logic chips. South Korean officials are contemplating this request, considering it may have significant implications for major local firms like Samsung and SK Hynix, which operate extensively in China, the country’s largest trading partner.
Additionally, the Biden administration is reportedly considering the implementation of an export control measure known as the foreign direct product rule. This rule would restrict exports to any country of goods manufactured with a specific proportion of U.S. intellectual property components, particularly targeting allies that continue to supply chipmaking tools and equipment to China.