South Korea is one of the few economies worldwide experiencing productivity gains due to advancements in artificial intelligence. However, potential challenges from U.S.-China tensions over semiconductor technology could hinder this growth, according to analysts from Bank of America.
The semiconductor sector is crucial for South Korea, accounting for 17% of its exports. Bank of America Global Research reports that the nation has greatly benefited from the AI surge, with exports increasing by over 50% year-on-year. In the long run, analysts believe that South Korea’s significant investments in AI research and development, along with a rising number of AI-related patents, will bolster its position in AI adoption.
On the other hand, analysts caution that geopolitical tensions—particularly between the U.S. and China—could negatively impact the semiconductor supply chain, posing a risk to AI’s growth in South Korea. Despite efforts to diversify chip exports away from China, over 30% of the country’s semiconductor exports still went to China and Hong Kong in 2023. Exports to the United States were similarly significant.
Bank of America analysts warned that if U.S. geopolitical tensions escalate and lead to additional trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports.
Furthermore, South Korean chip producers rely on China for various chipmaking components and equipment. Any disruption in this supply chain due to heightened tensions would complicate the ability of South Korean companies to acquire the necessary tools to manufacture chips.
The U.S. has reportedly urged South Korea to limit exports of equipment and technology to China specifically for producing memory chips and advanced logic chips, particularly those exceeding 14-nanometer and 18-nanometer specifications. South Korean officials are considering this request, weighing potential repercussions for major firms like Samsung and SK Hynix, which have significant operations in China—its largest trading partner.
Additionally, the Biden administration is reportedly contemplating the implementation of an export control measure known as the foreign direct product rule. This rule would prevent the export of any products manufactured with a certain percentage of U.S. intellectual property to countries that continue to sell chipmaking tools and equipment to China.