According to analysts at Bank of America, South Korea is currently one of the few economies experiencing productivity gains from artificial intelligence, although rising tensions between the U.S. and China over semiconductor chips may pose challenges to its growth trajectory.
The semiconductor sector represents 17% of South Korea’s exports, with the country being identified as the largest beneficiary of the AI boom, evidenced by a more than 50% year-over-year increase in exports, as noted in a recent report by Bank of America Global Research. The report highlights that South Korea’s significant investments in AI research and development, along with an increasing number of AI-related patents, are expected to enhance its standing in AI adoption in the long run.
However, the analysts cautioned that escalating geopolitical tensions could have an adverse impact on the semiconductor supply chain, particularly due to the strain in U.S.-China relations, which could hinder South Korea’s AI growth. Although South Korea has made efforts to diversify its chip exports away from China, over 30% of its chip exports still went to China and Hong Kong in 2023, with exports to the U.S. being of a similar proportion.
Bank of America’s analysts emphasized that if geopolitical tensions worsen and the U.S. implements further trade restrictions on the export of advanced or AI-related chips to China, it could severely affect South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for various chipmaking components and equipment. Disruptions to this supply chain due to escalating tensions would complicate the ability of South Korean companies to acquire the necessary tools for chip production.
Reports indicate that the U.S. has requested South Korea to limit its exports to China of equipment and technology used for manufacturing memory chips and advanced logic chips, particularly those with specifications more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly considering this request due to the potential impacts on major domestic firms like Samsung and SK Hynix, both of which operate in China, its primary trading partner.
In related developments, the Biden administration is reportedly contemplating applying an export control known as the foreign direct product rule against allies that continue to provide China with chipmaking tools and equipment. This rule would prohibit the export of any product that contains a certain percentage of U.S. intellectual property.