South Korea is among the few global economies experiencing a productivity increase due to artificial intelligence, although U.S.-China tensions regarding semiconductor technologies might pose a threat to its growth, according to analysts from Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as a major benefactor of the AI boom, with exports rising by over 50% year-on-year, as highlighted in a report from Bank of America Global Research. Analysts predict that South Korea’s significant investments in AI research and development, along with a rising number of AI-related patents, will enhance its position in AI integration in the long run.
However, they cautioned that “potential geopolitical tensions could impact the semiconductor supply chain,” particularly amid increasing friction between the U.S. and China, which could hinder AI advancements in South Korea. Although South Korea has shifted some of its chip exports away from China to other regions, China and Hong Kong still accounted for over 30% of its chip exports in 2023, with exports to the U.S. being similar.
Bank of America analysts indicated that if geopolitical tensions escalate and the U.S. enacts further trade restrictions on advanced or AI-related chips exported to China, it could severely affect South Korea’s memory semiconductor exports.
South Korean chip manufacturers also rely on China for various chipmaking components and equipment. Therefore, any disruptions in the supply chain due to rising tensions would complicate the procurement of essential tools needed for chip production.
The U.S. has reportedly requested South Korea to limit exports of equipment and technology necessary for manufacturing memory and advanced logic chips to China, particularly those chips more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are contemplating this request due to potential fallout on major companies such as Samsung and SK Hynix, which have operations in China, its largest trading partner.
Additionally, the Biden administration is said to be considering implementing an export control known as the foreign direct product rule on allies that continue to supply chipmaking tools and equipment to China. This rule would prohibit the export of any goods made with a certain percentage of U.S. intellectual property components to any country.