Bank of America analysts have noted that South Korea is among the few economies benefiting from a rise in productivity linked to artificial intelligence, although escalating U.S.-China tensions regarding semiconductors could pose risks to this progress.
According to a report from Bank of America Global Research, the semiconductor sector represents 17% of South Korea’s exports, which have increased by over 50% year-over-year during the AI boom. The analysts indicated that South Korea’s substantial investment in AI research and development, combined with a growing array of AI-related patents, is expected to reinforce the country’s leadership in AI implementation.
Nevertheless, the analysts cautioned that geopolitical strains, particularly between the U.S. and China, could impact the semiconductor supply chain, thus affecting AI growth in South Korea. While the nation has sought to diversify its chip export markets beyond China, over 30% of its semiconductor exports were heading to China and Hong Kong in 2023, with similar figures for exports to the U.S.
If U.S.-China tensions escalate and further trade restrictions on advanced or AI-related chips are enforced, this could significantly harm South Korea’s memory semiconductor exports, the report warns.
Moreover, South Korean semiconductor manufacturers rely on China for certain components and equipment essential for chip production. Disruptions in the supply chain due to geopolitical conflicts could hinder South Korean companies’ access to necessary production tools.
The U.S. has requested South Korea to limit exports to China of equipment and technology needed for memory chips and advanced logic chips, particularly those more advanced than 14-nanometer or DRAM memory chips greater than 18-nanometer. South Korean officials are considering this request, mindful of the potential impacts on large domestic companies like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
Additionally, the Biden administration is reportedly looking into applying an export control known as the foreign direct product rule on countries that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of any goods made with a specified percentage of U.S. intellectual property to any nation.