South Korea is one of the few nations experiencing a boost in productivity due to artificial intelligence, although escalating U.S.-China tensions regarding semiconductors may pose a challenge to its economic growth, according to analysts at Bank of America.
The semiconductor sector represents 17% of South Korea’s exports, and the country has been identified as the primary beneficiary of the AI boom, with exports surging more than 50% year-over-year, as reported by Bank of America Global Research. Analysts believe that South Korea’s substantial investment in AI research and development, along with an increasing number of AI-related patents, is likely to enhance its standing in AI adoption over time.
However, the analysts warned that potential geopolitical tensions could impact the semiconductor supply chain, particularly with regard to the rising friction between the U.S. and China, which could hinder AI growth in South Korea. Although the country has made efforts to diversify its chip exports away from China, it accounted for over 30% of chip exports to China and Hong Kong in 2023, with exports to the U.S. being approximately the same.
Analysts cautioned that if geopolitical tensions intensify and the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely impact South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for certain chipmaking components and equipment. Disruptions in supply chains due to heightened tensions would complicate access to essential tools for chip production.
Reports indicate that the U.S. has requested South Korea to limit exports of equipment and technology critical for manufacturing memory chips and advanced logic chips to China, specifically targeting chips more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly considering this request due to the potential impacts on major South Korean companies, including Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
Simultaneously, the Biden administration is reportedly contemplating the application of an export control known as the foreign direct product rule on allies that continue to supply chipmaking tools and equipment to China. This regulation would prevent the export of any goods to any country if they contain a certain percentage of U.S. intellectual property components.