Bank of America analysts have pointed out that South Korea is among the few economies globally experiencing an increase in productivity due to artificial intelligence. However, the analysts caution that escalating U.S.-China tensions over semiconductor supplies may pose obstacles to South Korea’s growth.
According to a report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports, and the nation has emerged as a primary beneficiary of the AI surge, witnessing a more than 50% year-on-year increase in its semiconductor exports. The analysts predict that South Korea’s significant investment in AI research and development, along with a rising number of AI-related patents, will enhance its standing in AI adoption moving forward.
Despite this optimistic outlook, the analysts warn that geopolitical issues could negatively impact the semiconductor supply chain, particularly due to rising tensions between the U.S. and China. Even though South Korea has shifted some of its chip exports away from China to other regions, over 30% of its exports still went to China and Hong Kong in 2023, which is similar to the volume exported to the U.S.
The analysts note that if U.S.-China tensions rise further and the U.S. enforces additional trade restrictions on advanced or AI-related chip exports to China, South Korea’s memory semiconductor exports could face substantial setbacks.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment necessary for chip production. Consequently, any supply chain disruptions stemming from geopolitical strife could hinder these firms’ ability to obtain the required tools for chip manufacturing.
Reports indicate that the U.S. has requested South Korea implement restrictions on the export of equipment and technology used for producing memory and advanced logic chips to China, with specific emphasis on chips more advanced than 14-nanometer and DRAM chips beyond 18-nanometer technology. South Korean officials are reportedly deliberating this request, given the potential impact on major domestic firms like Samsung and SK Hynix, which have operations in China, South Korea’s largest trading partner.
In parallel, 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 to supply chip-making tools and equipment to China. This rule would prevent the export of any goods manufactured using a specified percentage of U.S. intellectual property components to any country.