South Korea stands out as one of the few economies worldwide experiencing a productivity increase driven by artificial intelligence, although tensions between the U.S. and China regarding semiconductor technology could impede its growth, according to analysts at Bank of America.
The semiconductor sector constitutes 17% of South Korea’s exports, and the nation has emerged as the largest benefactor of the AI boom, with exports witnessing a surge of over 50% year-over-year, based on a report from Bank of America Global Research. The analysts project that South Korea’s significant investments in AI research and development, along with an increasing number of AI-related patents, will bolster the country’s position in AI integration in the long run.
However, the report warns that “potential geopolitical tensions could impact the semiconductor supply chain,” particularly amid escalating conflicts between the U.S. and China, which could challenge AI growth within South Korea. Although the country has diversified its chip exports beyond China to other regions, China and Hong Kong accounted for over 30% of its chip exports in 2023, a similar figure applies to exports to the U.S.
Bank of America analysts noted that if geopolitical tensions intensify and the U.S. enforces additional trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor export market.
Moreover, South Korean chip manufacturers rely on China for certain components and equipment essential for chip production. If these tensions disrupt the supply chain, it could complicate the procurement of necessary tools for South Korean companies to manufacture chips.
The U.S. has reportedly requested South Korea to limit exports to China of essential equipment and technology employed in the production of memory and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM memory chips greater than 18-nanometer. South Korean officials are considering this request, aware of potential implications for key domestic companies, including Samsung and SK Hynix, which have significant operations in China—its largest trading partner.
In addition, the Biden administration is reportedly contemplating the implementation of export controls, known as the foreign direct product rule, targeting allies that continue to trade chipmaking technology and tools with China. This rule would prevent any exports to any country that incorporates a specified percentage of U.S. intellectual property in the manufacturing process.