Bank of America analysts have indicated that South Korea is among the few economies experiencing a productivity increase due to artificial intelligence. However, tensions between the U.S. and China concerning semiconductor supplies could pose a risk to its economic growth.
According to a report from Bank of America Global Research, the semiconductor industry constitutes 17% of South Korea’s exports, positioning the nation as a significant beneficiary of the AI surge, with exports rising over 50% year-on-year. Analysts believe that South Korea’s substantial investments in AI research and development, along with an increasing number of AI-related patents, will enhance its standing in AI adoption over the long term.
Nonetheless, the report highlights that geopolitical tensions, particularly the ongoing friction between the U.S. and China, may affect the semiconductor supply chain and challenge AI growth in South Korea. Despite the country’s efforts to diversify chip exports beyond China, the nation and Hong Kong accounted for more than 30% of its chip exports in 2023, with similar figures for exports to the U.S.
If these geopolitical tensions escalate and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could have a severe impact on South Korea’s memory semiconductor exports, according to the analysts.
Moreover, South Korean chip manufacturers rely on China for some components and equipment necessary for chip production. Disruptions in the supply chain due to rising tensions could complicate access to essential production tools.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technology used in the production of memory chips and advanced logic chips, specifically those beyond the 14-nanometer and 18-nanometer thresholds. South Korean authorities are considering this request, aware of the potential consequences for major firms like Samsung and SK Hynix, which have operations in China, its largest trading partner.
In a related development, the Biden administration is contemplating the implementation of an export control known as the foreign direct product rule on allies that continue to sell chipmaking tools and equipment to China. This regulation would prevent the export of any goods produced with a specific percentage of U.S. intellectual property components to any country.