South Korea is experiencing a productivity surge driven by artificial intelligence, though analysts from Bank of America warn that escalating tensions between the U.S. and China regarding semiconductor components could hinder its growth.
According to a report from Bank of America Global Research, the semiconductor sector represents 17% of South Korea’s exports, with the nation emerging as the foremost beneficiary of the AI boom, demonstrated by more than a 50% year-over-year increase in exports. Analysts anticipate that South Korea’s significant investments in AI research, as well as a rising number of AI-related patents, will strengthen its position in AI adoption over the long term.
However, potential geopolitical tensions, particularly between the U.S. and China, could disrupt the semiconductor supply chain and pose challenges to South Korea’s AI advancements. Although South Korea has diversified its chip exports beyond China, the country and Hong Kong still accounted for over 30% of its chip exports in 2023, with exports to the U.S. being comparable.
Bank of America analysts cautioned that if geopolitical tensions intensify and the U.S. imposes further trade restrictions on shipments of advanced or AI-related chips to China, it could severely impact South Korea’s memory semiconductor exports.
Additionally, South Korean manufacturers rely on China for several components and equipment necessary for chip production. Any disruption in the supply chain due to rising tensions could complicate access to these essential tools.
The U.S. has reportedly requested that South Korea limit exports to China of both equipment and technology used in the production of memory chips and advanced logic chips, specifically those exceeding 14-nanometer and 18-nanometer processes, respectively. South Korean officials are reportedly deliberating this request, considering its potential impact on major corporations such as Samsung and SK Hynix, which have significant operations in China, South Korea’s largest trade partner.
Meanwhile, the Biden administration is said to be contemplating the application of an export control known as the foreign direct product rule on allies that continue selling chipmaking tools to China. This rule prohibits the export of goods that contain a specified percentage of U.S. intellectual property components to any nation.