Bank of America analysts have highlighted that South Korea is among the few economies experiencing a productivity increase attributed to artificial intelligence, though tensions between the United States and China regarding semiconductor production could hinder this growth.
According to a report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports, making the nation a significant beneficiary of the AI boom, with exports rising over 50% year-on-year. Analysts predict that South Korea’s substantial investment in AI research and development, along with an increasing number of AI-related patents, will enhance its standing in AI adoption in the long run.
However, potential geopolitical tensions could impact the semiconductor supply chain, particularly the ongoing friction between the U.S. and China, which poses challenges for AI development in South Korea. Despite diversifying its chip exports beyond China, over 30% of its semiconductor exports in 2023 were still directed to China and Hong Kong, mirroring the proportion exported to the U.S.
Bank of America analysts cautioned that escalating geopolitical issues and any new U.S. trade restrictions on the export of advanced or AI-related chips to China could severely affect South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for various chipmaking materials and equipment, meaning that supply chain disruptions due to heightened tensions would complicate the procurement of essential tools for chip production.
The United States has reportedly requested that South Korea limit exports to China of equipment and technology associated with producing memory and advanced logic chips, specifically those surpassing 14-nanometer and 18-nanometer processes respectively. South Korean officials are considering this request, aware of its potential impact on major domestic companies like Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
Furthermore, the Biden administration is contemplating implementing an export control known as the foreign direct product rule on allies that persist in supplying chipmaking tools and equipment to China. This rule would prevent the export of any goods that were manufactured using a specific percentage of U.S. intellectual property.