South Korea stands out as one of the few economies benefiting from a productivity surge fueled by artificial intelligence, although U.S.-China tensions regarding semiconductor supplies may pose significant challenges to its growth, according to analysts from Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and the nation has emerged as the biggest beneficiary of the AI boom, experiencing over a 50% increase in exports year-over-year, as highlighted in a recent Bank of America Global Research report. Analysts believe that South Korea’s substantial investment in AI research and development, coupled with an increasing number of AI-related patents, will enhance its position in AI adoption over time.
However, the report warns that “potential geopolitical tensions could weigh on the semiconductors supply chain,” particularly in light of the escalating disputes between the U.S. and China, which could hinder AI growth in South Korea. While the country has diversified its chip exports and reduced reliance on China, it was reported that China and Hong Kong accounted for over 30% of its chip exports in 2023, with similar figures for exports to the U.S.
The Bank of America analysts caution that if geopolitical tensions intensify and the U.S. imposes further trade restrictions on advanced or AI-related chip exports 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 disruption in this supply chain due to heightened tensions could complicate operations for these South Korean companies.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology used in the production of memory chips and advanced logic chips, specifically those exceeding 14-nanometer technology and DRAM memory chips beyond 18-nanometer technology. South Korean officials are reportedly considering this request, aware of potential repercussions for major firms such as Samsung and SK Hynix, which have significant operations in China, their largest trading partner.
Simultaneously, the Biden administration is reportedly contemplating the implementation of an export control known as the foreign direct product rule on allies that continue to supply chipmaking tools and equipment to China. This regulation would prohibit the export of any products to any country if those goods incorporate a certain percentage of U.S. intellectual property components.