Bank of America analysts have highlighted that South Korea is among the few economies benefiting from a productivity increase driven by artificial intelligence (AI), although rising U.S.-China tensions concerning semiconductors could pose challenges to its growth.
In a recent report, the analysts noted that the semiconductor sector constitutes 17% of South Korea’s exports. The country has reportedly reaped significant rewards from the AI surge, with exports rising by more than 50% year-over-year. Looking ahead, they anticipate that South Korea’s substantial investments in AI research and development, along with an increasing number of AI-related patents, will bolster its standing in AI integration.
Nonetheless, the analysts cautioned that geopolitical tensions, particularly between the U.S. and China, could impact the semiconductor supply chain, creating obstacles for AI expansion in South Korea. The analysis revealed that while the country has begun diversifying its chip exports beyond China, over 30% of its semiconductor exports in 2023 still went to China and Hong Kong, with a similar percentage directed to the U.S.
Should the geopolitical situation intensify and lead the U.S. to impose additional trade restrictions on advanced or AI-related chip exports to China, Bank of America warned that it could materially impact South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for specific components and equipment necessary for chip production. Disruptions in the supply chain due to heightened tensions could hinder the country’s firms from obtaining the tools needed to manufacture semiconductors.
The U.S. has reportedly requested South Korea to limit exports of equipment and technology used in producing memory chips and advanced logic chips—particularly those more advanced than 14-nanometer chips and DRAM memory chips exceeding 18-nanometer. South Korean authorities are reportedly considering this request, weighing potential implications for major corporations like Samsung and SK Hynix, which have operations in China, the country’s largest trading partner.
Simultaneously, the Biden administration is exploring the implementation of export controls known as the foreign direct product rule on allies that continue to sell chipmaking tools and equipment to China. This rule would prohibit the export of goods to any nation if they are produced with a certain percentage of U.S. intellectual property components.