South Korea is witnessing a significant boost in productivity attributable to artificial intelligence, making it one of the few economies globally experiencing such growth. However, analysts from Bank of America caution that ongoing tensions between the United States and China over semiconductor technology could pose risks to this progress.
According to a report from Bank of America Global Research, the semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as a major beneficiary of the AI boom, with export figures rising over 50% year-on-year. The analysts anticipate that South Korea’s substantial investment in AI research and development, along with an increasing number of AI-related patents, will enhance its standing in AI adoption in the long run.
Nevertheless, potential geopolitical strains could impact the semiconductor supply chain, particularly due to escalating U.S.-China tensions. The report highlights that, while South Korea has diversified its chip exports beyond China, over 30% of its chip exports in 2023 were still directed to China and Hong Kong, with a similar proportion going to the United States.
Bank of America analysts warned that if geopolitical conflicts intensify and the U.S. enforces stricter trade restrictions on advanced or AI-related chip exports to China, it could significantly hinder South Korea’s memory chip exports.
Moreover, South Korean chip manufacturers rely on China for certain essential components and equipment used in chip production. Hence, any disruption in the supply chain due to rising tensions would complicate the ability of South Korean companies to acquire the necessary tools to manufacture chips.
Reports indicate that the U.S. has asked South Korea to limit exports of equipment and technologies critical to the production of memory chips and advanced logic chips, specifically those surpassing 14-nanometer and 18-nanometer technology. South Korean officials are reportedly considering the U.S. request, taking into account potential repercussions for major firms like Samsung and SK Hynix, which conduct operations in China, South Korea’s largest trading partner.
Additionally, the Biden administration is reportedly contemplating the implementation of an export control measure known as the foreign direct product rule on allies that continue to provide chipmaking tools and equipment to China. This rule would prevent the export of any goods manufactured with a specified percentage of U.S. intellectual property to any country.