Bank of America analysts have indicated that South Korea is one of the few economies experiencing a productivity increase due to artificial intelligence. However, they also noted that rising tensions between the U.S. and China over semiconductor components could hinder the nation’s growth.
The semiconductor sector makes up 17% of South Korea’s exports, and the country has emerged as the leading beneficiary of the AI expansion, with exports increasing by over 50% year-on-year, according to a report from Bank of America Global Research. Analysts are optimistic that South Korea’s substantial investment in AI R&D and an increasing volume of AI-related patents will further bolster its role in AI adoption.
Nevertheless, analysts cautioned that geopolitical tensions could impact the semiconductor supply chain, particularly the escalating conflicts between the United States and China, which might pose challenges to South Korea’s AI growth. Even though South Korea has been working to diversify its chip exports beyond China, over 30% of its chip exports in 2023 were still directed towards China and Hong Kong, with similar figures for exports to the U.S.
Should tensions escalate and the U.S. impose further trade restrictions on advanced or AI-specific chip exports to China, it might severely impact South Korea’s memory semiconductor exports, according to the analysts.
Additionally, South Korean chip manufacturers rely on China for various components and equipment necessary for chip production. Disruptions in the supply chain due to geopolitical strains could complicate the procurement of essential tools for chip manufacturing.
Reports suggest that the U.S. has urged South Korea to limit exports of equipment and technology used in the production of memory chips and advanced logic chips, specifically targeting logic technology exceeding 14-nanometer and DRAM memory chips over 18-nanometer. South Korean officials are reportedly considering this request, weighing potential ramifications for major companies such as Samsung and SK Hynix, both of which have significant operations in China, South Korea’s largest trading partner.
Meanwhile, the Biden administration is reportedly contemplating invoking an export control measure known as the foreign direct product rule against allies that continue to sell chipmaking technology and tools to China. This rule restricts the export of any product to any nation if it was manufactured incorporating a certain percentage of U.S. intellectual property.