Analysts from Bank of America have noted that South Korea is uniquely positioned to benefit from a productivity increase driven by artificial intelligence, although rising tensions between the U.S. and China regarding semiconductor trade could hinder its growth.
The semiconductor sector plays a crucial role in South Korea’s economy, contributing 17% of its total exports. A report from Bank of America Global Research indicates that South Korea has emerged as a key participant in the AI boom, with semiconductor exports seeing a year-over-year increase of over 50%. The report suggests that ongoing investments in AI-related research and an increase in AI patents could solidify the nation’s standing in AI technology.
However, analysts warned that geopolitical tensions, particularly between the U.S. and China, might disrupt the semiconductor supply chain, posing a risk to South Korea’s burgeoning AI growth. Despite diversifying its chip exports away from China, over 30% of South Korea’s chip exports in 2023 were still directed towards China and Hong Kong, with a similar percentage going to the U.S.
Should escalations in geopolitical tensions occur, particularly if the U.S. imposes new trade restrictions on the export of advanced or AI-related chips to China, Bank of America analysts believe this could seriously threaten South Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for certain components and manufacturing equipment. Therefore, if tensions lead to supply chain disruptions, it could hinder their ability to produce chips effectively.
The U.S. has reportedly requested that South Korea limit exports to China of specific equipment and technologies for making memory chips and advanced logic chips. This includes logic chips more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean authorities are contemplating the implications of this request, considering potential impacts on major corporations like Samsung and SK Hynix, which operate extensively in China, South Korea’s largest trading partner.
Simultaneously, the Biden administration is exploring the application of an export control measure known as the foreign direct product rule on nations that persist in supplying chipmaking technologies to China. This rule would prevent the export of any goods to any country if they incorporate a specific percentage of U.S. intellectual property.