Bank of America analysts have noted that South Korea is one of the few economies experiencing a productivity increase driven by artificial intelligence. However, they also warned that escalating U.S.-China tensions over semiconductor issues might hinder this growth.
According to a recent report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports. The country has emerged as a significant beneficiary of the AI boom, with exports surging more than 50% year-over-year. Analysts are optimistic that South Korea’s substantial investment in AI research and development, coupled with a rise in AI-related patents, will bolster its position in AI adoption over the long term.
Despite this positive outlook, analysts cautioned that potential geopolitical conflicts could adversely impact the semiconductor supply chain. The ongoing tension between the U.S. and China poses a particular threat to South Korea’s AI advancements. Although South Korea has begun diversifying its chip exports away from China, it was reported that over 30% of its chip exports still went to China and Hong Kong in 2023, with a similar volume directed toward the U.S.
Bank of America analysts highlighted that if U.S.-China tensions escalate, particularly with the U.S. imposing further trade restrictions on exports of advanced or AI-related chips to China, it could severely impact Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for various chipmaking components and equipment. Disruption in supply chains due to geopolitical tensions could complicate access to essential production tools for South Korean firms.
The U.S. has reportedly urged South Korea to limit its exports to China of critical equipment and technology used in manufacturing memory chips and advanced logic chips, particularly those that exceed the 14-nanometer and 18-nanometer thresholds. South Korean officials are considering these U.S. requests, mindful of the potential ramifications for major corporations like Samsung and SK Hynix that have operations in China, its largest trading partner.
At the same time, the Biden administration is contemplating the implementation of export controls under the foreign direct product rule against allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of any goods made with a certain percentage of U.S. intellectual property components to any country.