South Korea is experiencing a productivity increase stemming from artificial intelligence, a trend that distinguishes it among global economies. However, analysts at Bank of America caution that rising tensions between the United States and China regarding semiconductor chips could hinder this growth.
According to a report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports, and the country has emerged as a significant beneficiary of the AI surge, evidenced by a year-over-year export increase of more than 50%. The report indicates that South Korea’s substantial investments in AI research and development, alongside a growing number of AI-related patents, will bolster its position in AI adoption in the long run.
Nonetheless, analysts expressed concerns that geopolitical tensions may disrupt the semiconductor supply chain, particularly due to escalating US-China relations. China and Hong Kong accounted for over 30% of South Korea’s semiconductor exports in 2023, with exports to the U.S. being similarly substantial. Analysts warn that if the U.S. heightens trade restrictions on advanced chips exported to China, it could significantly impact South Korea’s memory semiconductor exports.
South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. An escalation of tensions could complicate access to these essential tools, thereby impeding production capabilities.
The U.S. has reportedly urged South Korea to limit exports of equipment and technology needed for manufacturing memory chips and advanced logic chips to China, especially those with specifications beyond 14-nanometers and DRAM chips exceeding 18-nanometers. South Korean officials are reportedly considering the U.S. request, mindful of the potential impact on major domestic companies like Samsung and SK Hynix, which have significant operations in China, South Korea’s largest trading partner.
Furthermore, the Biden administration is contemplating the implementation of an export control measure known as the foreign direct product rule, targeting allies that persist in supplying chipmaking tools and equipment to China. This rule would prohibit the export of any product manufactured with a certain percentage of U.S. intellectual property to any country.