Analysts from Bank of America have noted that South Korea is one of the few economies experiencing a productivity increase due to artificial intelligence. However, they caution that the ongoing tensions between the U.S. and China regarding semiconductors could hinder this growth.
The semiconductor sector plays a significant role in South Korea’s economy, accounting for 17% of its exports. According to a recent report from Bank of America Global Research, South Korea has emerged as the biggest beneficiary of the AI surge, with its exports rising by over 50% year-on-year. The report highlights that South Korea’s substantial investments in AI research and development, along with a rising number of AI-related patents, are likely to enhance its standing in AI utilization in the long run.
Despite these positive indicators, analysts warned that “potential geopolitical tensions could weigh on the semiconductor supply chain,” particularly the worsening relationship between the U.S. and China. Although South Korea has successfully diversified its chip exports beyond China, the report states that over 30% of its chip exports in 2023 were still to China and Hong Kong, with a similar proportion going to the U.S.
The analysts pointed out that if tensions were to escalate further and the U.S. imposed additional trade restrictions on advanced or AI-related chip exports to China, it could significantly impact South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for various chipmaking components and equipment, meaning that supply chain disruptions could complicate their ability to produce chips.
Reports indicate that the U.S. has asked South Korea to impose restrictions on exporting equipment and technologies used to manufacture memory chips and advanced logic chips to China. The South Korean government is reportedly considering this request due to potential repercussions for major South Korean firms such as Samsung and SK Hynix, which operate in China, their largest trading partner.
In a related development, the Biden administration is reportedly contemplating applying an export control known as the foreign direct product rule on allies that continue to supply chipmaking tools and equipment to China. This rule prevents the export of any product manufactured using a specific percentage of U.S. intellectual property to any country.