South Korea is one of the few economies benefiting from a boost in productivity due to artificial intelligence, according to analysts from Bank of America. However, rising U.S.-China tensions regarding semiconductors could present challenges to this growth.
The semiconductor sector is crucial for South Korea, accounting for 17% of the country’s exports. Bank of America Global Research reports that South Korea has emerged as a leading benefactor of the AI boom, with exports increasing by over 50% compared to last year. Analysts believe that the significant investment in AI research and development, along with a rise in AI-related patents, will further strengthen South Korea’s position in AI technology.
Despite these advancements, analysts warn that geopolitical tensions might adversely affect the semiconductor supply chain—particularly the friction between the U.S. and China—which could hinder South Korea’s AI growth. Although the country has started to diversify its chip exports away from China, in 2023, China and Hong Kong still comprised more than 30% of these exports, while exports to the U.S. were at a similar level.
Bank of America analysts pointed out that if U.S.-China tensions were to escalate and the U.S. imposed stricter trade restrictions on exports of advanced or AI-related chips to China, it could severely impact South Korea’s memory chip exports.
Furthermore, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Disruptions in the supply chain due to ongoing tensions could make it challenging for South Korean companies to obtain the tools required for chip manufacturing.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technology essential for producing memory chips and advanced logic chips. This includes restrictions specifically targeting logic chips more advanced than 14-nanometers and DRAM memory chips beyond 18-nanometers. South Korean officials are currently evaluating this request, mindful of potential repercussions for major firms like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
In related developments, the Biden administration is contemplating implementing an export control known as the foreign direct product rule on allied countries that continue to supply chipmaking tools and equipment to China. This rule prevents the export of any goods to any nation if they are manufactured with a certain degree of U.S. intellectual property.