Bank of America analysts have indicated that South Korea is among the few economies globally experiencing a productivity increase driven by artificial intelligence. However, tensions between the U.S. and China concerning semiconductor manufacturing could pose risks to the nation’s growth.
According to a report from Bank of America Global Research, the semiconductor sector represents 17% of South Korea’s exports, and the country has emerged as the largest beneficiary of the AI surge, with exports rising over 50% year-over-year. Analysts believe that South Korea’s significant investment in AI research and development, coupled with an increasing number of AI-related patents, will further enhance its position in the AI sector.
Nonetheless, potential geopolitical tensions may impact the semiconductor supply chain. The ongoing conflict between the U.S. and China could particularly challenge South Korea’s AI growth. Although South Korea has diversified its chip exports away from China to other regions, China and Hong Kong accounted for over 30% of its semiconductor exports in 2023, with exports to the U.S. being about the same.
Bank of America analysts noted that if U.S.-China tensions escalate and the U.S. imposes additional trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for various components and equipment necessary for chip production. Disruptions in the supply chain due to rising tensions could complicate access to essential tools for South Korean firms.
Reportedly, the U.S. has requested South Korea to limit exports to China of technology and equipment needed for producing memory chips and advanced logic chips, particularly those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are contemplating this request due to potential repercussions on major domestic companies like Samsung and SK Hynix, which have operations in China, its largest trading partner.
At the same time, the Biden administration is allegedly considering implementing an export control measure known as the foreign direct product rule against allies that continue to sell chipmaking equipment to China. This rule would prohibit the export of any product from any country if it incorporates a certain percentage of U.S. intellectual property components.