South Korea is reportedly enjoying a notable productivity increase from artificial intelligence, positioning it uniquely among global economies. However, analysts at Bank of America warn that heightened tensions between the U.S. and China over semiconductor technology may pose risks to this growth trajectory.
The semiconductor sector is crucial for South Korea, constituting 17% of its total exports. According to a report by Bank of America Global Research, South Korea has emerged as the largest beneficiary of the AI revolution, with exports soaring more than 50% year-over-year. Analysts predict that the nation’s significant investments in AI research and development, along with a surge in AI-related patents, will further solidify its role as a leader in AI adoption.
Nonetheless, analysts caution that geopolitical strife could impact the semiconductor supply chain, particularly the escalating friction between the U.S. and China. Although South Korea has successfully diversified its chip exports to other regions, China and Hong Kong still represented over 30% of its semiconductor exports in 2023, with exports to the U.S. being comparable.
Should geopolitical tensions escalate, particularly if the U.S. imposes further trade restrictions on advanced and AI-related semiconductor exports to China, the report suggests that South Korea’s memory semiconductor exports could face significant setbacks.
Furthermore, South Korean chipmakers are reliant on China for certain components and manufacturing equipment. Any disruption in relations that impacts the supply chain may hinder these companies’ ability to acquire the necessary tools for chip production.
The U.S. has reportedly requested South Korea to limit exports to China of equipment and technology essential for manufacturing memory chips and advanced logic chips—specifically, chips more advanced than 14-nanometer technology and DRAM memory chips beyond 18-nanometer. South Korean authorities are reportedly contemplating this request, considering potential ramifications for major local corporations such as Samsung and SK Hynix, both of which have operations in China, the country’s largest trading partner.
In parallel, the Biden administration is said to be evaluating the use of an export control mechanism known as the foreign direct product rule against allies that continue to sell chipmaking tools and equipment to China. This regulation would prohibit the export of any products to any country if those products incorporate a certain percentage of U.S. intellectual property.