Bank of America analysts have stated that South Korea’s economy is one of the few in the world currently benefiting from a boost in productivity due to artificial intelligence. However, tensions between the U.S. and China regarding semiconductor technology could pose risks to this growth.
According to a report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports, making the country the largest beneficiary of the AI surge, with exports increasing over 50% year-over-year. Analysts believe that South Korea’s significant investments in AI research and development, along with a rising number of AI-related patents, will enhance its position in AI adoption over time.
Nonetheless, the report warns that increasing geopolitical tensions, particularly between the U.S. and China, could impact the semiconductor supply chain, threatening AI expansion in South Korea. Despite diversifying chip exports beyond China, over 30% of South Korea’s semiconductor exports were still directed to China and Hong Kong in 2023, while exports to the U.S. accounted for a similar percentage.
The analysts noted that if geopolitical tensions worsen and the U.S. imposes additional trade restrictions on the export of advanced or AI-related chips to China, it could significantly affect South Korea’s memory semiconductor exports.
South Korean chip manufacturers also rely on China for various components and equipment needed for chip production. Disruptions in supply chains due to rising tensions could hinder South Korean companies’ ability to procure essential tools for chip manufacturing.
Reports suggest that the U.S. has asked South Korea to limit exports to China of technology and equipment used in the production of memory chips and advanced logic chips, particularly those that are more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly considering the U.S. request, given the potential impact on major South Korean enterprises like Samsung and SK Hynix, both of which have significant operations in China, its largest trading partner.
Additionally, the Biden administration is exploring the use of an export control known as the foreign direct product rule, targeting allies that continue to sell chip-making tools and equipment to China. This rule could restrict the export of goods manufactured with a certain proportion of U.S. intellectual property to any country.