Bank of America analysts have noted that South Korea is among the few economies globally experiencing a productivity surge driven by artificial intelligence, though rising tensions between the U.S. and China concerning semiconductor technology may pose a significant risk to its growth.
According to a report by Bank of America Global Research, the semiconductor sector is responsible for 17% of South Korea’s exports. The nation stands out as the largest beneficiary of the AI boom, with exports rising over 50% year-on-year. Analysts believe that South Korea’s strong investment in AI research and development, alongside an increasing number of AI-related patents, will bolster its position in AI adoption in the future.
Nevertheless, the report cautions that “potential geopolitical tensions could weigh on the semiconductor supply chain,” especially in light of escalating U.S.-China relations, which could hinder AI advancement in South Korea. While the country has managed to diversify its chip exports beyond China, over 30% of its chip exports in 2023 still went to China and Hong Kong, with exports to the U.S. being roughly equivalent.
Bank of America analysts elaborated that if geopolitical tensions escalate and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could significantly affect South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for several chipmaking components and equipment. Disruptions in the supply chain due to such tensions could hinder these manufacturers’ ability to acquire the necessary tools for chip production.
The U.S. has reportedly asked South Korea to limit exports to China of equipment and technology relating to memory chips and advanced logic chips, especially those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials have been contemplating the U.S. request, aware of the potential impact on major firms like Samsung and SK Hynix, which have significant operations in China, South Korea’s largest trading partner.
At the same time, the Biden administration is said to be considering implementing an export control known as the foreign direct product rule on allies that continue to supply chipmaking tools and equipment to China. This rule would restrict the export of any product to any nation if it is manufactured with a specific percentage of U.S. intellectual property components.