South Korea stands out as one of the few economies witnessing a productivity increase due to artificial intelligence, although tensions between the U.S. and China concerning semiconductor technology could pose a risk to its growth, according to analysts at Bank of America.
The semiconductor sector is pivotal for South Korea, representing 17% of its exports, and recent findings indicate that the nation has emerged as the primary beneficiary of the AI surge, with export figures rising by over 50% year-on-year. Bank of America Global Research emphasizes that South Korea’s substantial investment in AI research and development, along with its increasing number of AI patents, will likely enhance its capabilities in AI integration moving forward.
Nevertheless, the analysts warned that “potential geopolitical tensions could weigh on the semis supply chain,” particularly with the escalating friction between the U.S. and China. Despite diversifying chip exports to other regions, more than 30% of South Korea’s semiconductor exports in 2023 were directed to China and Hong Kong, which corresponds with the same export volume to the U.S.
The report noted that if U.S.-China tensions worsen and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely impact South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for components and equipment necessary for chip production. Any disruption in the supply chain due to geopolitical tensions could hinder the ability of South Korean companies to obtain essential manufacturing tools.
Furthermore, it has been reported that the U.S. has requested South Korea to limit exports to China of equipment and technology related to memory and advanced logic chips. South Korean officials are contemplating this request due to potential impacts on major companies like Samsung and SK Hynix, both of which have significant operations in China, the country’s largest trading partner.
In parallel, the Biden administration is reportedly evaluating the implementation of an export control mechanism known as the foreign direct product rule on allies that continue to supply chipmaking equipment and tools to China. This rule prohibits the export of any good manufactured with a certain proportion of U.S. intellectual property to other countries.