Bank of America analysts have highlighted that South Korea stands out as one of the few economies globally experiencing a productivity increase due to artificial intelligence (AI). However, they caution that escalating tensions between the United States and China over semiconductor technology could pose risks to this growth.
The semiconductor industry is crucial for South Korea, accounting for 17% of its exports. The country has reaped substantial benefits from the AI surge, with exports rising over 50% year-over-year. Analysts expect that South Korea’s significant investments in AI research and development, alongside an increasing number of AI-related patents, will further enhance its position in the AI sector.
Nevertheless, potential geopolitical conflicts could negatively impact the semiconductor supply chain, particularly amid rising tensions between the U.S. and China. Although South Korea has diversified its chip exports to other regions, more than 30% were still sent to China and Hong Kong in 2023, with exports to the U.S. being roughly the same.
The analysts warn that if U.S.-China tensions worsen and the United States imposes additional trade restrictions on advanced chip exports to China, it could severely impact South Korea’s memory semiconductor exports.
Furthermore, South Korean chip manufacturers rely on China for essential chipmaking components and equipment. Disruptions in this supply chain could hinder Korean firms’ ability to acquire the necessary tools for chip production.
The U.S. has reportedly requested that South Korea limit exports to China of certain equipment and technology related to the production of memory and advanced logic chips. South Korean officials are currently evaluating this request, considering potential repercussions for major domestic companies like Samsung and SK Hynix that operate in China, the nation’s largest trading partner.
Meanwhile, the Biden administration is reportedly contemplating the application of an export control measure known as the foreign direct product rule on allies that continue to supply chipmaking tools to China. This rule prohibits the export of any goods produced using a specified percentage of U.S. intellectual property.