Bank of America analysts have noted that South Korea is one of the few economies globally experiencing a productivity increase linked to artificial intelligence. However, escalating tensions between the U.S. and China regarding semiconductor chips may pose a threat to the country’s growth.
The semiconductor sector represents a significant portion, 17%, of South Korea’s exports. Bank of America Global Research reports that South Korea is reaping substantial benefits from the AI surge, with exports rising more than 50% year-over-year. Analysts project that the nation’s substantial investments in AI research and development, coupled with an increasing number of AI-related patents, will further enhance its capabilities in AI adoption.
Nonetheless, the analysts caution that geopolitical tensions might impact the semiconductor supply chain, particularly the strained relations between the U.S. and China. Although South Korea has successfully diversified its chip exports to other regions, China and Hong Kong still accounted for over 30% of the country’s chip exports in 2023, with exports to the U.S. being roughly equivalent.
Should tensions escalate, particularly if the U.S. imposes additional trade restrictions on advanced or AI-related chip exports to China, it could severely disrupt South Korea’s memory semiconductor exports, according to the analysts.
South Korean chip manufacturers also rely on China for essential chipmaking components and equipment. Consequently, any disruption in this supply chain due to geopolitical tensions would hinder South Korean companies’ ability to obtain the necessary tools for chip production.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology used in producing memory chips and advanced logic chips, specifically those more advanced than 14-nanometer, along with DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly considering this request due to potential implications for major firms such as Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
Additionally, the Biden administration is contemplating applying an export control known as the foreign direct product rule to allies that continue supplying chipmaking tools to China. This rule restricts the export of any goods to any nation if they incorporate a specific percentage of U.S. intellectual property.