South Korea is benefiting from a productivity surge attributed to artificial intelligence, but analysts from Bank of America warn that escalating U.S.-China tensions over semiconductor technology may pose threats to its economic growth.
According to a Bank of America Global Research report, the semiconductor sector constitutes 17% of South Korea’s exports, and the country has emerged as a key player in the AI surge, with exports increasing more than 50% over the past year. Analysts believe that South Korea’s substantial investments in AI research and development, along with a rise in AI-related patents, will facilitate further advancements in AI adoption.
However, the report cautions that geopolitical tensions, particularly between the U.S. and China, may impact the semiconductor supply chain and pose challenges for South Korea’s AI growth. Although South Korea has started to diversify its chip exports away from China, over 30% of its semiconductor exports in 2023 still went to China and Hong Kong, with exports to the U.S. being comparable.
Bank of America analysts stated that if geopolitical conflicts intensify and the U.S. imposes further trade restrictions on advanced or AI-related chips exported to China, it could severely impact South Korea’s memory chip exports.
Additionally, South Korean semiconductor producers rely on China for crucial manufacturing components and equipment. Disruptions in this supply chain could hinder their ability to procure the necessary tools for chip production.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology for manufacturing memory chips and advanced logic chips—specifically those beyond 14-nanometer processes and DRAM chips over 18-nanometer. South Korean officials are reportedly deliberating this request in light of potential repercussions for major domestic firms, such as Samsung and SK Hynix, which have significant operations in China, the nation’s largest trading partner.
Meanwhile, the Biden administration is reportedly contemplating the implementation of an export control measure known as the foreign direct product rule, aimed at allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of goods produced with a certain proportion of U.S. intellectual property components to any country.