Bank of America analysts have indicated that South Korea is one of the few countries experiencing productivity gains from artificial intelligence, yet rising tensions between the U.S. and China regarding semiconductors could impede its growth.
According to a report from Bank of America Global Research, the semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as the leading benefactor from the AI surge, witnessing over a 50% increase in exports year-over-year. The report highlighted that South Korea’s substantial investments in AI research and development, coupled with an uptick in AI-related patents, are likely to strengthen the country’s standing in AI adoption in the long run.
Nonetheless, the analysts warned that escalating geopolitical tensions could impact the semiconductor supply chain, particularly as tensions between the U.S. and China intensify, presenting challenges to South Korea’s AI development. Despite diversifying chip exports away from China, more than 30% of South Korea’s chip exports were to China and Hong Kong in 2023, with exports to the U.S. being roughly similar.
The analysts cautioned that if geopolitical tensions escalate and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports.
Furthermore, South Korean chip manufacturers rely on China for various chipmaking components and equipment, making supply chain disruptions detrimental to their production capabilities.
The U.S. has reportedly requested South Korea to limit exports to China of equipment and technology essential for memory chips and advanced logic chips, specifically those exceeding 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly considering this request due to potential impacts on major companies like Samsung and SK Hynix, which have significant operations in China, South Korea’s largest trading partner.
In parallel, the Biden administration is said to be contemplating employing an export control mechanism called the foreign direct product rule on allies that continue to supply chipmaking tools to China. This rule prevents any goods from being exported to any country if they are manufactured using a specified percentage of U.S. intellectual property components.