South Korea is among the few economies globally experiencing a productivity increase due to artificial intelligence, but tensions between the U.S. and China regarding semiconductor technology could hinder its growth, according to analysts from Bank of America.
The semiconductor sector constitutes 17% of South Korea’s exports, and the nation has emerged as the largest beneficiary of the AI surge, with exports soaring over 50% year-on-year, as detailed in a report by Bank of America Global Research. Analysts indicate that South Korea’s significant investments in AI research and development, along with an increasing number of AI-related patents, will likely enhance its AI adoption in the future.
However, the report also warns that potential geopolitical tensions could impact the semiconductor supply chain, particularly in light of the escalating friction between the U.S. and China. Despite South Korea diversifying its chip exports away from China, over 30% of its chip exports in 2023 were still directed to China and Hong Kong, a figure comparable to exports to the U.S.
Bank of America analysts cautioned that if geopolitical tensions intensify and the U.S. implements further trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for various components and equipment essential for chip production. Any disruption in the supply chain due to rising tensions could complicate their access to necessary production tools.
Reports suggest the U.S. has urged South Korea to limit exports of equipment and technology for manufacturing memory chips and advanced logic chips to China, specifically those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly deliberating this request, considering its potential impact on major domestic companies like Samsung and SK Hynix, which operate in China, South Korea’s largest trading partner.
In parallel, the Biden administration is contemplating the application of an export control known as the foreign direct product rule against allies that persist in supplying chipmaking tools and equipment to China. This rule would prevent the export of any product to any nation if it incorporates a certain percentage of U.S. intellectual property components.