South Korea is currently one of the few economies benefiting from a productivity increase attributed to artificial intelligence, though analysts from Bank of America caution that rising tensions between the U.S. and China regarding semiconductor technology may pose significant risks to its growth.
According to a report from Bank of America Global Research, the semiconductor sector represents 17% of South Korea’s exports, marking it as the largest beneficiary of the AI surge, with a reported over 50% increase in exports year-over-year. Analysts suggest that South Korea’s significant investments in AI research and its expanding portfolio of AI-related patents are likely to enhance its standing in AI application in the future.
Nonetheless, the report highlights that geopolitical tensions could impact the semiconductor supply chain, particularly due to escalating conflicts between the U.S. and China. Although South Korea has shifted some of its chip exports away from China to other regions, a considerable portion—over 30%—of its chip exports in 2023 still went to China and Hong Kong, with a similar figure for exports to the U.S.
Bank of America analysts state that if the U.S. were to impose further trade restrictions on advanced or AI-related chip exports to China, this could substantially affect South Korea’s memory semiconductor exports.
Additionally, South Korean chip producers rely on China for various components and equipment necessary for chip manufacturing. Should these geopolitical tensions disrupt the supply chain, it could hinder South Korean companies from accessing essential tools required for chip production.
Reports indicate that the U.S. has requested South Korea to limit exports of equipment and technology needed to manufacture advanced memory chips and logic chips, specifically those more advanced than 14-nanometer and DRAM chips exceeding 18-nanometer. South Korean officials are reportedly evaluating this request, considering the potential impact on major corporations like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
Meanwhile, the Biden administration is contemplating implementing an export control measure known as the foreign direct product rule against allies that persist in supplying chip-making tools and technology to China. This rule would prevent the export of any product to any nation if it incorporates a specified percentage of U.S. intellectual property.