Analysts from Bank of America have noted that South Korea is among the few economies benefiting from an increase in productivity driven by artificial intelligence. However, growing tensions between the United States and China over semiconductor technology could pose risks to the country’s economic growth.
The semiconductor sector makes up 17% of South Korea’s exports, and the nation has reportedly been the leading beneficiary of the AI surge, with exports rising over 50% year-on-year, according to a Bank of America Global Research report. Analysts believe that South Korea’s significant investments in AI research and development, coupled with an increasing number of AI-related patents, will enhance its role in AI adoption in the future.
Nonetheless, the analysts have pointed out that potential geopolitical conflicts could impact the semiconductor supply chain. This is particularly concerning given the escalating tensions between the U.S. and China, which may hinder AI growth in South Korea. While the country has made efforts to diversify its chip exports away from China, the report indicates that China and Hong Kong accounted for over 30% of South Korea’s chip exports in 2023, with similar numbers for exports to the U.S.
Should geopolitical issues intensify and the U.S. impose further trade restrictions on advanced or AI-related chip exports to China, South Korean memory semiconductor exports could face significant setbacks, according to Bank of America analysts.
Additionally, South Korean chip manufacturers rely on China for various components and equipment needed for chip production. Any disruption in this supply chain due to tensions could complicate the ability of South Korean companies to acquire essential tools for chip manufacturing.
Reportedly, the U.S. has requested South Korea to limit exports to China of equipment and technology used in memory chip and advanced logic chip production, specifically those logic chips that are more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are considering this request, mindful of potential repercussions for major companies like Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
In parallel, the Biden administration is contemplating the application of an export control mechanism known as the foreign direct product rule against allies that continue to supply chipmaking tools and equipment to China. This rule would prevent any goods from being exported to any country if they contain a certain percentage of U.S. intellectual property components.