Analysts from Bank of America have indicated that South Korea is among the few economies globally experiencing a surge in productivity due to artificial intelligence (AI). However, they also noted that increasing tensions between the U.S. and China regarding semiconductor technology could pose challenges to this growth.
The semiconductor sector plays a crucial role in South Korea’s economy, constituting 17% of its exports. A recent report from Bank of America Global Research highlighted that the country has emerged as a significant beneficiary from the AI boom, with chip exports increasing over 50% compared to the previous year. Analysts believe that South Korea’s substantial investments in AI research and development, along with an increasing number of AI-related patents, will further solidify its position in AI deployment going forward.
Nevertheless, analysts cautioned that geopolitical strain could impact the semiconductor supply chain, particularly given the escalating tensions between the U.S. and China. Although South Korea has worked on diversifying its chip exports away from China, it was reported that China and Hong Kong accounted for over 30% of South Korea’s chip exports in 2023, with similar figures for exports to the U.S.
Bank of America analysts warned that if geopolitical tensions worsen and the U.S. imposes stricter trade restrictions on advanced or AI-related chip exports to China, this could severely impact memory semiconductor exports from Korea.
Additionally, South Korean chip manufacturers rely on China for essential chipmaking components and equipment. If these tensions disrupt supply chains, it would hamper their ability to obtain necessary tools for chip production.
Reports suggest that the U.S. has requested South Korea to limit exporting equipment and technology to China that are used for manufacturing memory chips and advanced logic chips, particularly those more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly evaluating this request due to the potential impacts on major firms like Samsung and SK Hynix, which operate in China, its largest trading partner.
Simultaneously, the Biden administration is contemplating the application of an export control known as the foreign direct product rule on allies that continue to sell chipmaking equipment to China. This rule would prevent the export of any goods to any nation if they are produced using a certain proportion of U.S. intellectual property components.