South Korea is currently one of the few economies globally experiencing a productivity increase due to artificial intelligence. However, analysts from Bank of America have noted that rising U.S.-China tensions over semiconductor technology could pose challenges to the nation’s growth.
The semiconductor sector constitutes 17% of South Korea’s exports, and according to a report from Bank of America Global Research, the country has become the principal beneficiary of the AI surge, with exports rising over 50% yearly. Analysts anticipate that South Korea’s significant investments in AI research and development, along with an increasing number of AI-related patents, will further strengthen its position in AI utilization in the long term.
Nevertheless, analysts warned that escalating geopolitical tensions could impact the semiconductor supply chain, particularly the deteriorating relationship between the U.S. and China, which may hinder AI growth in South Korea. Even though South Korea has diversified its chip exports, over 30% of its chip exports in 2023 were still directed to China and Hong Kong, with exports to the U.S. being similar in volume.
Bank of America’s analysts emphasized that if U.S.-China tensions worsen and the United States imposes more stringent trade restrictions on the export of advanced or AI-related chips to China, it could severely affect South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for some essential chipmaking components and equipment. Disruptions in the supply chain due to rising tensions would complicate the ability of South Korean firms 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 the production of memory chips, particularly those more advanced than 14-nanometer logic chips and DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly considering this request due to potential repercussions for major South Korean corporations, such as Samsung and SK Hynix, which have operations in China, the nation’s largest trading partner.
In addition, the Biden administration is contemplating the implementation of an export control measure known as the foreign direct product rule on allies that continue supplying chipmaking tools and equipment to China. This regulation would prohibit the export of any product to any nation if it contains a certain percentage of materials derived from U.S. intellectual property.