Bank of America analysts report that South Korea is among the few economies experiencing a productivity increase due to artificial intelligence. However, tensions between the U.S. and China regarding semiconductor supplies may pose hurdles for South Korea’s growth.
The semiconductor sector constitutes 17% of South Korea’s exports, and according to a recent Bank of America Global Research report, the nation has significantly benefitted from the AI surge, with exports increasing over 50% annually. Analysts predict that South Korea’s substantial investment in AI research and development, coupled with an increasing number of AI-related patents, will enhance its role in AI adoption in the long run.
Despite this positive outlook, analysts caution that potential geopolitical conflicts could hinder the semiconductor supply chain, primarily due to escalating tensions between the U.S. and China. Although South Korea has diversified its chip exports from China to other regions, over 30% of its chip exports were still directed to China and Hong Kong in 2023, with an equal portion going to the U.S.
Bank of America analysts warn that if U.S.-China tensions intensify and further trade restrictions are imposed on advanced or AI-related chip exports to China, South Korea’s memory semiconductor exports could be severely impacted.
Moreover, South Korean chip manufacturers rely on China for essential components and equipment necessary for chip production. Disruptions in the supply chain due to these tensions may complicate access to tools required for manufacturing chips.
Reports indicate that the U.S. has urged South Korea to limit exports to China of equipment and technology used in the production of memory chips and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are contemplating the U.S. request due to potential impacts on major domestic companies like Samsung and SK Hynix, which have significant operations in China, the nation’s largest trading partner.
Meanwhile, the Biden administration is reportedly evaluating the use of an export control mechanism known as the foreign direct product rule against allies that continue to export chipmaking tools and equipment to China. This rule prevents the export of goods produced with a certain proportion of U.S. intellectual property to any country.