South Korea stands out as one of the few economies globally experiencing a productivity surge linked to artificial intelligence, although tensions between the U.S. and China regarding semiconductor chips could pose risks to its growth, as indicated by analysts from Bank of America.
According to a report from Bank of America Global Research, the semiconductor sector comprises 17% of South Korea’s exports, and the nation has emerged as a significant beneficiary of the AI boom, with exports increasing over 50% year-over-year. Analysts predict that South Korea’s substantial investments in AI research and development, along with a rising number of AI-related patents, will continue to enhance its role in AI adoption.
However, there are concerns that “potential geopolitical tensions could weigh on the semiconductor supply chain,” particularly due to the escalating conflict between the U.S. and China, which could impede the growth of AI in South Korea. Although South Korea has diversified its chip exports beyond China to other regions, data reveals that over 30% of its chip exports in 2023 still went to China and Hong Kong, with similar figures for exports to the U.S.
Bank of America analysts warned that if geopolitical tensions intensify and the U.S. imposes stricter trade restrictions on advanced or AI-related chip exports to China, it could severely impact memory semiconductor exports from Korea.
Furthermore, South Korean chip manufacturers rely on China for some components and equipment necessary for chip production. Disruptions in supply chains due to heightened tensions could create obstacles for South Korean companies in acquiring the essential tools for manufacturing chips.
Reportedly, the U.S. has requested South Korea to limit exports to China concerning equipment and technology used in producing memory chips and advanced logic chips, particularly those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly considering the U.S. request, fearing the possible repercussions for major South Korean firms, including Samsung and SK Hynix, which have operations in China—its largest trading partner.
In addition, the Biden administration is said to be contemplating the implementation of an export control rule called the foreign direct product rule, targeting allies that continue to supply chipmaking tools and equipment to China. This rule would prevent any export of goods that have been manufactured with a certain percentage of U.S. intellectual property components.