South Korea has emerged as one of the few economies globally experiencing a productivity boost driven by artificial intelligence, though Bank of America analysts warn that U.S.-China tensions over semiconductor chips may pose challenges to its continued growth.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has been identified as a significant beneficiary of the AI boom, with a year-over-year increase in exports exceeding 50%, according to a report from Bank of America Global Research. Analysts suggest that South Korea’s substantial investments in AI research and its increasing number of AI-related patents will further strengthen its position in the field.
Nevertheless, analysts caution that geopolitical tensions could impact the semiconductor supply chain, particularly the escalating friction between the U.S. and China. While South Korea has made strides to diversify its chip exports away from China, over 30% of its chip exports were directed to China and Hong Kong in 2023, with a similar figure for exports to the U.S.
Should tensions escalate and the U.S. implements further trade restrictions on the export of advanced or AI-related chips to China, it could significantly disrupt South Korea’s memory semiconductor exports, the analysts noted.
Additionally, South Korean chip manufacturers rely on China for various chipmaking components and equipment. If geopolitical conflicts interfere with the supply chain, it could hinder South Korean firms’ access to essential tools for chip production.
The U.S. has reportedly requested that South Korea limit its exports to China of equipment and technology used for producing advanced chips, particularly those more advanced than 14-nanometer logic chips and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly considering this request, mindful of potential consequences for major firms like Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
Furthermore, the Biden administration is contemplating applying a foreign direct product rule on 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 manufactured using a certain percentage of U.S. intellectual property.