Bank of America analysts have noted that South Korea is one of the few economies globally experiencing a productivity increase due to artificial intelligence. However, they warn that growing U.S.-China tensions over semiconductor technology could hinder the nation’s growth.
The semiconductor sector represents 17% of South Korea’s exports, and according to a Bank of America Global Research report, the country has been a top beneficiary of the AI surge, with exports surging over 50% year-on-year. Analysts predict that continued high investment in AI research and development, paired with a rise in AI-related patents, will enhance South Korea’s position in AI adoption in the long run.
Nonetheless, potential geopolitical conflicts could negatively impact the semiconductor supply chain, particularly the escalating tensions between the U.S. and China. Despite South Korea’s efforts to diversify its chip exports away from China, more than 30% of its chip exports in 2023 were to China and Hong Kong, with similar figures for exports to the U.S.
Bank of America analysts warned that if U.S. geopolitical tensions escalate and further trade restrictions are placed on the export of advanced or AI-related chips to China, this could severely impact South Korea’s memory semiconductor exports.
South Korean chip manufacturers also rely on China for certain components and equipment necessary for chip production. Disruptions in this supply chain could hinder their ability to acquire the essential tools for chip manufacturing.
Additionally, the U.S. has reportedly requested that South Korea limit exports to China of equipment and technology used for producing memory and advanced logic chips. South Korean officials are currently evaluating this request, considering the potential consequences for major companies like Samsung and SK Hynix, which have significant operations in China, the country’s largest trading partner.
Furthermore, the Biden administration is considering enforcing an export control known as the foreign direct product rule on allies that continue to sell chipmaking tools to China. This rule would prevent the export of any product manufactured with a certain level of U.S. intellectual property to circumvent restrictions.