South Korea is experiencing a notable productivity increase attributed to artificial intelligence, making it one of the few economies benefiting from this technological advancement. However, analysts from Bank of America warn that rising tensions between the United States and China over semiconductor chips may pose risks to this growth.
According to a report by Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports, and the country has emerged as a major beneficiary of the AI revolution, with export levels soaring by over 50% year-on-year. Analysts express optimism that South Korea’s substantial investment in AI research and development, along with a rising number of AI-related patents, will solidify its standing in AI integration.
Nevertheless, the report also highlights that geopolitical tensions could disrupt the semiconductor supply chain, particularly due to the escalating conflict between the U.S. and China. Although South Korea has diversified its chip exports away from China, in 2023, China and Hong Kong still accounted for over 30% of its chip exports, similar to the volume of exports to the United States.
Bank of America analysts caution that should tensions escalate and the U.S. enforce further restrictions on the export of advanced or AI-related chips to China, it could significantly impact South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for essential components and equipment used in chip production. Disruption in these supply chains due to geopolitical issues could hinder South Korean companies’ abilities to obtain the necessary tools for manufacturing chips.
Reports indicate that the U.S. has requested South Korea to limit exports of chipmaking equipment and technology to China, specifically targeting advanced logic chips exceeding 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly contemplating the U.S. request due to potential impacts on major firms like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
In a related note, the Biden administration is contemplating the use of an export control mechanism known as the foreign direct product rule on allies that continue to supply chipmaking tools to China. This rule would prevent the export of any products made with a specified percentage of U.S. intellectual property to any country.