Bank of America analysts have indicated that South Korea is among the few economies globally experiencing a productivity surge due to artificial intelligence, though rising U.S.-China tensions regarding semiconductor technology may pose a risk to this growth.
The semiconductor sector constitutes 17% of South Korea’s exports, and according to a report from Bank of America Global Research, the nation has emerged as the largest beneficiary of the AI boom, with exports increasing by over 50% year over year. Analysts believe that South Korea’s significant investments in AI research and development, along with a rising number of AI-related patents, will enhance its position in AI integration over the long term.
However, analysts warned that geopolitical conflicts could disrupt the semiconductor supply chain, particularly due to escalating tensions between the U.S. and China. Despite diversifying chip exports away from China, data shows that China and Hong Kong accounted for over 30% of South Korea’s chip exports in 2023, with exports to the U.S. also being approximately the same.
Potential escalation of geopolitical strife could lead to the U.S. imposing additional trade restrictions on advanced or AI-related chip exports to China, which could severely impact South Korea’s memory semiconductor exports, according to Bank of America analysts.
Additionally, South Korean chip manufacturers rely on China for critical semiconductor components and equipment. Any supply chain disruptions resulting from heightened tensions would complicate the ability of South Korean companies to obtain necessary production tools.
Reports suggest that the U.S. has requested South Korea to limit exports to China of equipment and technology used in producing advanced memory chips and logic chips, particularly those more sophisticated than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly considering this request due to possible implications for major firms such as Samsung and SK Hynix, which have significant operations in China, South Korea’s largest trading partner.
Moreover, the Biden administration is reportedly mulling the implementation of an export control, known as the foreign direct product rule, targeting allies that continue to supply chipmaking tools and equipment to China. This rule could prevent the export of any goods to any country if those goods are manufactured with a certain portion of U.S. intellectual property components.