Bank of America analysts noted that South Korea is one of the few economies globally experiencing a productivity increase due to artificial intelligence, though rising tensions between the U.S. and China regarding semiconductor technology may pose challenges to its growth.
The semiconductor sector contributes 17% to South Korea’s exports, and the country has emerged as a significant beneficiary of the AI boom, with exports having risen over 50% year-on-year. Analysts believe that South Korea’s substantial investment in AI research and development, along with a growing number of AI-related patents, will bolster its position in AI adoption in the long run.
However, the analysts cautioned that escalating geopolitical tensions could impact the semiconductor supply chain, particularly due to the ongoing discord between the U.S. and China. Despite South Korea’s attempts to diversify its chip exports beyond China, over 30% of its semiconductor exports in 2023 were still directed towards China and Hong Kong, with a similar proportion going to the U.S.
Analysts warned that if geopolitical relations deteriorate and the U.S. enacts further trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for essential chipmaking components and equipment, meaning any disruption in this supply chain could hinder the ability of South Korean companies to acquire the necessary tools for chip production.
The U.S. has reportedly asked South Korea to limit exports of equipment and technology needed to produce memory and advanced logic chips to China. South Korean officials are evaluating this request in light of potential impacts on major firms like Samsung and SK Hynix, which have operations in China, its largest trading partner.
At the same time, the Biden administration is reportedly considering imposing export controls known as the foreign direct product rule on allies that continue to sell chipmaking tools to China. This rule would prevent any goods from being exported if they are produced using a certain percentage of U.S. intellectual property components.