South Korea is experiencing a productivity increase linked to artificial intelligence, making it one of the few economies benefiting from this technological boom. However, analysts from Bank of America warn that rising tensions between the U.S. and China regarding semiconductor technology may pose challenges for South Korea’s economic growth.
The semiconductor sector represents 17% of South Korea’s exports, and a recent report from Bank of America Global Research highlights that the country has significantly profited from the AI surge, with exports rising over 50% compared to the previous year. Analysts expressed optimism that South Korea’s substantial investments in AI research and development, along with a growing number of AI-related patents, will strengthen its leadership in AI technologies.
Nonetheless, the analysts cautioned that “potential geopolitical tensions could weigh on the semis supply chain,” particularly due to escalating U.S.-China tensions that could hinder AI growth in South Korea. In 2023, China and Hong Kong accounted for over 30% of South Korea’s semiconductor exports, with similar figures for exports to the U.S.
The analysts noted that if U.S.-China tensions continue to escalate, particularly with the imposition of additional trade restrictions on advanced semiconductor exports to China, it could severely impact South Korea’s memory chip exports.
South Korean semiconductor companies are also reliant on China for crucial chipmaking components and equipment. Disruption in supply chains could complicate access to essential tools for chip production.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology used in producing memory chips and advanced logic chips. South Korean officials are reportedly deliberating the U.S. request, considering the potential impact on major domestic firms like Samsung and SK Hynix, which have significant operations in China, South Korea’s largest trading partner.
In addition, the Biden administration is thought to be contemplating the implementation of an export control regulation known as the foreign direct product rule on allies that continue supplying chipmaking tools to China. This regulation would prohibit exporting any products that incorporate a specified percentage of U.S. technology to any country.