South Korea is currently experiencing a productivity surge attributed to artificial intelligence, positioning it as one of the few economies benefiting from this technology. However, analysts from Bank of America have noted that rising tensions between the U.S. and China regarding semiconductors could hinder this 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 a significant beneficiary of the AI boom, with exports rising over 50% year-over-year. Analysts anticipate 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 over time.
Nevertheless, the analysts caution that potential geopolitical issues might impact the semiconductor supply chain. The ongoing friction between the U.S. and China could pose challenges for AI growth in South Korea. Although the country has been diversifying its chip exports beyond China to other regions, over 30% of its chip exports in 2023 were still directed toward China and Hong Kong. Exports to the U.S. were similar.
Bank of America analysts expressed concerns that if geopolitical strains worsen and the U.S. enforces further trade restrictions on advanced or AI-related chip exports to China, it could significantly affect Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for various components and equipment necessary for chip production. Disruption in the supply chain due to geopolitical tensions could complicate the ability of South Korean companies to secure the needed tools for manufacturing chips.
Reports indicate that the U.S. has requested South Korea to limit exports of equipment and technology used for producing memory chips and advanced logic chips to China. South Korean officials are reportedly considering this request, given the possible implications for major companies like Samsung and SK Hynix, which have significant operations in China.
Furthermore, the Biden administration is allegedly contemplating utilizing the foreign direct product rule to impose export controls on allies that continue to supply chipmaking tools and equipment to China. This rule prohibits the export of any goods to any country if they are produced with a certain percentage of U.S. intellectual property components.