South Korea stands out as one of the few economies experiencing a productivity increase due to artificial intelligence, although tensions between the U.S. and China regarding semiconductors may pose challenges to its growth, according to Bank of America analysts.
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The semiconductor sector represents 17% of South Korea’s exports, and it has reportedly been the primary beneficiary of the AI surge, with exports rising over 50% year-over-year, as stated in a Bank of America Global Research report. Analysts anticipate that South Korea’s significant investments in AI research and development, along with an increasing number of AI-related patents, will enhance its position in AI integration in the future.
However, the analysts caution that escalating geopolitical tensions could impact the semiconductor supply chain, particularly given the rising friction between the U.S. and China. Although South Korea has shifted some of its chip exports away from China to other regions, over 30% of its chip exports were directed to China and Hong Kong in 2023, according to the report. Exports to the U.S. accounted for a similar proportion.
The analysts emphasized that if geopolitical conflicts intensify and the U.S. imposes additional 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 critical chipmaking components and equipment. Should tensions disrupt supply chains, it would hinder South Korean companies’ access to essential tools for chip production.
The U.S. has reportedly urged South Korea to limit exports of equipment and technology to China used in making memory chips and advanced logic chips, specifically those that surpass 14-nanometer technology and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly considering the U.S. request due to potential repercussions for significant domestic firms, such as Samsung and SK Hynix, which have operations in China—their largest trading partner.
In addition, the Biden administration is reportedly contemplating the implementation of an export control mechanism known as the foreign direct product rule on allies that continue to sell chipmaking tools and equipment to China. This regulation would prohibit the export of any goods manufactured with a specified percentage of U.S. intellectual property components to any country.