Bank of America analysts have noted that South Korea stands out as one of the few economies benefiting from artificial intelligence’s productivity surge. However, rising tensions between the U.S. and China regarding semiconductors could pose challenges to South Korea’s growth trajectory.
Currently, the semiconductor sector represents 17% of South Korea’s exports, with the country experiencing a remarkable increase in AI-related exports, reportedly up over 50% year-on-year, as stated in a recent report from Bank of America Global Research. The analysts project that South Korea’s significant investment in AI research and development, coupled with a rising number of AI-related patents, will enhance its AI adoption in the long run.
Despite this positive outlook, analysts caution that geopolitical tensions could negatively impact the semiconductor supply chain, particularly given the ongoing friction between the U.S. and China. While South Korea has started to diversify its chip exports away from China, the report highlights that more than 30% of its chip exports in 2023 still went to China and Hong Kong, with exports to the U.S. being similar.
Should the geopolitical situation worsen, particularly if the U.S. implements further trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports, according to Bank of America analysts.
Furthermore, South Korean semiconductor manufacturers rely on China for certain chipmaking components and equipment. Consequently, any disruption in this supply chain could hinder their ability to procure essential tools for chip production.
The U.S. has reportedly requested that South Korea limit exports to China of technologies and equipment used for manufacturing memory and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly contemplating the implications of this request, considering its potential impact on significant domestic companies like Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
Additionally, the Biden administration is evaluating the possibility of invoking an export control measure known as the foreign direct product rule against allies who continue supplying chipmaking tools to China. This regulation would prohibit the export of any goods manufactured with a specific percentage of U.S. intellectual property to any country.