Bank of America analysts have reported that South Korea is one of the few economies globally experiencing a productivity increase due to artificial intelligence (AI). However, they caution that rising tensions between the U.S. and China over semiconductor chips could pose a threat to this growth.
The semiconductor industry plays a vital role in South Korea’s economy, making up 17% of its exports. According to a report by Bank of America Global Research, the country has emerged as the primary beneficiary of the AI boom, with semiconductor exports rising by more than 50% year-over-year. Analysts anticipate that South Korea’s substantial investments in AI research and development, along with a growing number of related patents, will enhance its position in AI utilization.
Nonetheless, the analysts highlighted that “potential geopolitical tensions could weigh on the semis supply chain,” particularly due to increasing conflicts between the U.S. and China, which could hinder AI growth in South Korea. Although the country has begun diversifying its chip exports to other regions, China and Hong Kong still constituted over 30% of its chip exports in 2023, with shipments to the U.S. being similar.
The report warned that any significant escalation in geopolitical tensions, particularly if the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, could substantially impact South Korea’s memory semiconductor exports.
South Korean chip manufacturers rely on China for various components and equipment necessary for chip production. Consequently, any disruption in the supply chain due to heightened tensions would complicate their ability to secure essential tools for chip manufacturing.
Reports indicate that the U.S. has requested South Korea to limit its exports to China of machinery and technology for producing memory chips and advanced logic chips, particularly those more advanced than 14-nanometers and DRAM memory chips exceeding 18-nanometers. South Korean officials are reportedly considering this request, weighing the potential effects on major domestic firms, such as Samsung and SK Hynix, which operate within China—the country’s largest trading partner.
Additionally, the Biden administration is reportedly contemplating the use of an export control, known as the foreign direct product rule, targeting allies that continue to supply chipmaking tools and equipment to China. This regulation would prohibit the export of any goods to any nation if they are manufactured using a specific percentage of U.S. intellectual property.