South Korea stands out as one of the few economies experiencing a productivity boost from artificial intelligence, according to analysts from Bank of America. However, the ongoing tensions between the U.S. and China concerning semiconductor chips could pose a risk to this growth.
The semiconductor sector comprises 17% of South Korea’s exports, and a recent report from Bank of America Global Research indicates that the country has been the foremost beneficiary of the AI surge, with exports soaring more than 50% year-over-year. The report highlights that South Korea’s significant investments in AI research and development, along with an increasing number of AI-related patents, are likely to enhance its leadership in AI adoption over the long term.
Nonetheless, analysts caution that geopolitical uncertainties could impact the semiconductor supply chain, particularly due to rising tensions between the U.S. and China. While South Korea has made efforts to diversify its chip exports beyond China, the report notes that both China and Hong Kong accounted for over 30% of its chip exports in 2023, with exports to the U.S. at a similar level.
Bank of America analysts warned that if geopolitical issues escalate and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could have a substantial negative impact on South Korea’s memory semiconductor exports.
South Korean chip manufacturers also rely on China for certain components and equipment necessary for chip production. Disruptions in the supply chain due to heightened tensions could complicate access to these essential tools.
Additionally, the U.S. has reportedly requested South Korea to limit exports to China of equipment and technology used for memory chips and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are considering the U.S. request, weighing potential repercussions for prominent South Korean companies such as Samsung and SK Hynix, which have operations in China, their largest trading partner.
Meanwhile, the Biden administration is reportedly contemplating the implementation of an export control measure known as the foreign direct product rule on allies that continue to export chipmaking tools and equipment to China. This rule would prohibit the export of any goods to any country if a specified percentage of those goods contains U.S. intellectual property components.