South Korea is experiencing a unique productivity surge attributed to artificial intelligence, according to analysts from Bank of America. However, they also noted that ongoing tensions between the United States and China over semiconductor technology could pose risks to this growth.
In a recent report, Bank of America Global Research highlighted that the semiconductor sector represents 17% of South Korea’s exports. The nation has emerged as a significant beneficiary of the AI industry, with exports rising over 50% year-over-year. The report asserts that South Korea’s substantial investments in AI research and development, coupled with an increasing number of AI-related patents, will bolster its leadership in AI utilization over time.
Nevertheless, analysts cautioned that geopolitical tensions could impact the semiconductor supply chain, particularly amid escalating conflicts between the U.S. and China. Even though South Korea has worked to diversify its chip exports beyond China, the two nations, along with Hong Kong, still accounted for over 30% of its chip exports in 2023, with shipments to the U.S. being comparable.
Bank of America analysts warned that if tensions escalate and the United States enacts further trade restrictions on advanced or AI-related chip exports to China, it could adversely affect South Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for essential components and equipment used in chip production. Disruptions in the supply chain due to geopolitical strain could hinder their ability to source necessary manufacturing tools.
The U.S. has reportedly urged South Korea to impose limitations on exports of equipment and technology intended for the production of advanced memory chips and logic chips, particularly those exceeding a 14-nanometer scale and DRAM chips beyond 18-nanometer. South Korean officials are considering these requests, taking into account the potential impact on major firms like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
Additionally, the Biden administration is exploring 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 goods manufactured with a specified percentage of U.S. intellectual property components to any country.