Bank of America analysts have noted that South Korea is among the few global economies experiencing a productivity increase due to artificial intelligence. However, they also caution that ongoing U.S.-China tensions regarding semiconductor manufacturing could hinder this growth.
The semiconductor sector represents 17% of South Korea’s exports, and according to a Bank of America Global Research report, the country has emerged as a significant beneficiary of the AI boom, with exports rising over 50% year-on-year. Analysts believe that South Korea’s substantial investment in AI research and development, along with an uptick in AI-related patents, positions it well for future advancements in AI technology.
Despite these positive developments, the analysts warn that geopolitical tensions, particularly between the U.S. and China, may impact the semiconductor supply chain, posing risks to AI growth in South Korea. Although South Korea has worked to diversify its chip exports away from China, the report highlights that more than 30% of its chip exports were to China and Hong Kong in 2023, with a similar figure for exports to the U.S.
The report emphasizes that should tensions escalate and the U.S. impose further trade restrictions on advanced or AI-related chip exports to China, it could significantly harm South Korea’s memory semiconductor exports. Additionally, South Korean chip manufacturers rely on China for essential components and equipment needed for chip production. Disruptions in this supply chain could impede their ability to manufacture chips.
Reports suggest that the U.S. has requested South Korea to limit exports of equipment and technology used in producing advanced memory chips and logic chips to China. South Korean officials are reportedly considering this request, which could impact major companies such as Samsung and SK Hynix that operate in China, South Korea’s largest trading partner.
In a related development, the Biden administration is contemplating the use of an export control measure known as the foreign direct product rule against allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of goods to any country if they contain a specified percentage of U.S. intellectual property components.