Bank of America analysts have indicated that South Korea is among the few economies benefiting from a productivity increase due to artificial intelligence. However, they warn that escalating tensions between the U.S. and China over semiconductor supply chains could pose challenges to South Korea’s growth.
According to a report from Bank of America Global Research, the semiconductor industry constitutes 17% of South Korea’s exports, and the country has emerged as a significant benefactor of the AI boom, with exports surging over 50% year-over-year. The analysts noted that South Korea’s substantial investments in AI research and development, coupled with an increasing number of AI-related patents, are likely to enhance its AI adoption in the long term.
Despite these advancements, analysts caution that potential geopolitical tensions may impact the semiconductor supply chain. Specifically, ongoing disputes between the U.S. and China may threaten South Korea’s AI growth. Although the country has begun to diversify its chip exports beyond China, the report highlighted that more than 30% of South Korea’s chip exports in 2023 were to China and Hong Kong.
The report further stated that should geopolitical conflicts escalate, particularly if the U.S. imposes new trade restrictions on exports of advanced or AI-related chips to China, it could severely affect South Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for essential chipmaking components and equipment. Disruptions in the supply chain due to rising tensions could hinder their ability to procure the necessary tools for chip production.
The U.S. has reportedly urged South Korea to limit exports of equipment and technology to China needed for manufacturing memory chips and advanced logic chips, specifically those exceeding 14-nanometer for logic chips and 18-nanometer for DRAM memory chips. South Korean officials are currently deliberating on this request, considering potential repercussions for major companies like Samsung and SK Hynix, which have significant operations in China.
In addition, the Biden administration is reportedly contemplating applying an export control measure known as the foreign direct product rule on allies that persist in supplying chipmaking tools and equipment to China. This rule prevents the export of goods manufactured with a certain percentage of U.S. intellectual property to any country.