According to analysts at Bank of America, South Korea is one of the few global economies experiencing productivity gains from artificial intelligence, although growing U.S.-China tensions regarding semiconductor chips could hinder its growth.
A report from Bank of America Global Research indicates that the semiconductor industry constitutes 17% of South Korea’s exports, highlighting that the nation has reaped the most benefits from the AI boom, with a significant increase of over 50% in exports year-over-year. The report suggests that South Korea’s substantial investment in AI research and development, alongside an increasing number of AI-related patents, is likely to enhance its position in AI adoption further.
However, the analysts caution that potential geopolitical tensions, particularly between the U.S. and China, could impact the semiconductor supply chain and pose challenges to AI growth in South Korea. Although South Korea has made efforts to diversify its chip exports beyond China, over 30% of its chip exports in 2023 were still directed toward China and Hong Kong. Exports to the U.S. amounted to a similar figure.
Bank of America analysts warned that if U.S.-China tensions escalate further and the U.S. imposes stricter trade restrictions on advanced or AI-related chip exports to China, it could severely affect South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for essential components and equipment used in chipmaking. Disruptions in the supply chain due to geopolitical issues could complicate the ability of South Korean firms to procure the necessary tools for chip production.
Reportedly, the U.S. has requested that South Korea limit the export of equipment and technology to China for the production of memory chips and advanced logic chips, particularly those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly contemplating this request due to potential impacts on major companies such as Samsung and SK Hynix, both of which operate within China, its largest trading partner.
In the meantime, it has been suggested that the Biden administration is contemplating implementing an export control called the foreign direct product rule against allies that continue to provide chipmaking tools and equipment to China. This rule would prohibit the export of any goods to any nation if they are produced using a specified percentage of U.S. intellectual property.