Bank of America analysts have reported that South Korea is among the few economies globally experiencing a productivity surge due to artificial intelligence. However, tensions between the U.S. and China over semiconductor technology may pose challenges to its growth.
The semiconductor sector contributes significantly to South Korea’s economy, accounting for 17% of its exports. According to the Global Research report by Bank of America, South Korea has emerged as a major beneficiary of the AI boom, with exports jumping over 50% year-on-year. The report suggests that ongoing investments in AI research and an increasing number of AI-related patents will likely enhance the country’s position in AI adoption in the future.
Despite these positive indicators, analysts caution that rising geopolitical tensions could impact the semiconductor supply chain. The escalating conflict between the U.S. and China poses risks to AI advancement in South Korea. Although South Korea has begun diversifying its chip exports away from China, both China and Hong Kong accounted for over 30% of its chip exports in 2023, similar to the share exported to the U.S.
If geopolitical frictions intensify and the U.S. imposes stricter trade restrictions on exports of advanced or AI-related chips to China, this could severely impact South Korea’s memory semiconductor exports, according to Bank of America analysts.
Moreover, South Korean chip manufacturers rely on China for some essential components and equipment. Disruptions in this supply chain due to geopolitical issues could hinder South Korean companies’ ability to produce chips effectively.
Reports suggest that the U.S. has requested South Korea to limit exports to China concerning the equipment and technology used to manufacture memory chips and advanced logic chips. South Korean officials are reportedly contemplating this request amidst concerns about the potential impact on major firms like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
Additionally, the Biden administration is considering implementing export controls using the foreign direct product rule against allies that continue to supply chipmaking tools to China. This rule would prevent the export of goods produced with a specified percentage of U.S. intellectual property components to any country.