Bank of America analysts have noted that South Korea stands out as one of the few economies globally experiencing a productivity boost from artificial intelligence. However, rising tensions between the U.S. and China concerning semiconductor supplies may pose challenges to this growth.
The semiconductor sector represents 17% of South Korea’s total exports, and the nation has recognized significant gains from the AI surge, with exports increasing by more than 50% year-over-year, according to a report by Bank of America Global Research. The analysts predict that South Korea will continue to strengthen its AI position over the long term due to substantial investments in AI research and development, as well as a growing number of AI-related patents.
Despite this optimistic outlook, analysts caution that geopolitical tensions could impact the semiconductor supply chain. The ongoing discord between the U.S. and China could challenge South Korea’s AI growth. In 2023, over 30% of South Korea’s chip exports were directed toward China and Hong Kong, with exports to the U.S. being relatively similar.
Bank of America analysts warned that if geopolitical tensions escalate and the U.S. enforces additional trade restrictions on the export of advanced chips to China, it could severely impact South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for various components and equipment essential for chip production. Any disruptions resulting from escalating tensions could complicate the ability of these firms to secure the necessary tools for chip manufacturing.
The U.S. has reportedly requested that South Korea limit exports to China of equipment and technology used for producing memory chips and advanced logic chips, particularly those with specifications more complex than 14-nanometers and DRAM memory chips exceeding 18-nanometers. South Korean officials are considering this request, taking into account potential consequences for major South Korean companies like Samsung and SK Hynix, which have substantial operations in China, South Korea’s foremost trading partner.
In parallel, the Biden administration is contemplating the implementation of export controls under a rule that restricts allies from continuing to sell chipmaking tools and equipment to China. This regulation prevents the export of any item to any country if it has been manufactured using a specified percentage of U.S. intellectual property components.