Bank of America analysts have indicated that South Korea is among the few economies worldwide benefiting from a productivity surge fueled by artificial intelligence. However, they also warned that rising tensions between the U.S. and China over semiconductor supplies could pose challenges to South Korea’s growth.
The semiconductor sector constitutes 17% of South Korea’s total exports, and the country has emerged as a significant player in the AI market, with exports increasing by more than 50% year-over-year, as highlighted in a recent report by Bank of America Global Research. The analysts expressed optimism that South Korea’s substantial investments in AI research and development, along with a growing number of AI-related patents, will enhance the country’s position in AI adoption over time.
Despite this positive outlook, the analysts cautioned that geopolitical tensions, particularly between the U.S. and China, could have a detrimental effect on the semiconductor supply chain, impacting the growth of AI in South Korea. The report noted that while the country has diversified its chip exports away from China, over 30% of its chip exports in 2023 were still directed to China and Hong Kong.
If U.S.-China tensions were to escalate, particularly concerning new trade restrictions on exports of advanced and AI-related chips to China, South Korea’s memory semiconductor exports could be significantly impacted.
Additionally, South Korean chip manufacturers rely on China for various components and equipment essential for chip production. Disruptions in the supply chain due to geopolitical tensions could complicate access to these vital production tools.
The U.S. has reportedly requested that South Korea impose restrictions on exporting to China specific equipment and technologies crucial for manufacturing memory and advanced logic chips. South Korean officials are contemplating this request, considering potential repercussions for major South Korean firms such as Samsung and SK Hynix, which have operations in China, its primary trading partner.
Furthermore, the Biden administration is reportedly evaluating the implementation of an export control, known as the foreign direct product rule, targeting allies that continue to supply chipmaking tools and equipment to China. This rule would prohibit the export of any goods to any country if they are produced using a certain percentage of U.S. intellectual property components.