Bank of America analysts have highlighted that South Korea is among the few economies benefiting from a boost in productivity driven by artificial intelligence (AI). However, they caution that tensions between the U.S. and China, particularly regarding semiconductor technology, could pose challenges to this growth.
The semiconductor sector represents 17% of South Korea’s exports, and a recent report shows that the nation has been a significant beneficiary of the AI boom, experiencing over a 50% increase in exports year-over-year. Analysts believe that South Korea’s substantial investment in AI research and development, coupled with a growing number of AI-related patents, is likely to enhance its position in AI adoption over the long term.
Nonetheless, the report notes that geopolitical tensions could impact the semiconductor supply chain. The escalating friction between the United States and China could challenge South Korea’s AI growth trajectory. Although South Korea has diversified its chip exports to other regions, more than 30% of its chip exports were still directed towards China and Hong Kong in 2023, which is comparable to exports to the U.S.
Bank of America analysts warn that if geopolitical tensions escalate and the U.S. were to impose new trade restrictions on advanced or AI-related chip exports to China, it could greatly affect South Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for various components and equipment required for chip production. Disruptions in the supply chain due to tensions could complicate the procurement of necessary tools for South Korean companies.
Reports indicate that the U.S. has requested South Korea to restrict the export of equipment and technology to China that is used in producing memory chips and advanced logic chips, particularly those beyond 14-nanometer and DRAM memory chips over 18-nanometer. South Korean officials are reportedly considering this request, weighing potential repercussions on major firms like Samsung and SK Hynix, which have significant operations in China, its largest trading partner.
In parallel, the Biden administration is reportedly contemplating implementing an export control policy, known as the foreign direct product rule, aimed at allies that continue to sell chipmaking tools and equipment to China. This rule restricts exports of goods if they are manufactured using a specific percentage of U.S. intellectual property components.