South Korea is experiencing a notable increase in productivity attributed to artificial intelligence, positioning itself as one of the few economies benefiting from the AI boom. However, analysts from Bank of America caution that escalating tensions between the U.S. and China concerning semiconductor technology could pose challenges to this growth.
The semiconductor sector plays a crucial role in South Korea’s economy, accounting for 17% of its total exports. According to a report from Bank of America Global Research, the country has seen its exports surge by over 50% year-on-year, benefiting significantly from advancements in AI. Analysts foresee that South Korea’s substantial investment in AI research and development, coupled with a rising number of AI-related patents, will enhance its AI adoption in the future.
Despite these positive indicators, potential geopolitical issues may impact the semiconductor supply chain. The increasing friction between the U.S. and China is particularly concerning, as China and Hong Kong represented more than 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 additional U.S. trade restrictions are imposed on exports of advanced or AI-related chips to China, it could adversely affect South Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for essential components and equipment used in chip production. Disruption in this supply chain due to rising tensions could hinder South Korean companies’ ability to acquire the necessary tools for chip manufacturing.
Reports suggest that the U.S. has requested South Korea to limit its exports to China of equipment and technology for producing memory and advanced logic chips. South Korean officials are currently deliberating on this request, considering the potential impact on major firms such as Samsung and SK Hynix, which have significant operations in China.
In parallel, the Biden administration is reportedly contemplating implementing export controls under the foreign direct product rule, which would restrict allies from selling chipmaking tools and equipment to China if those goods include a certain percentage of U.S. intellectual property.