South Korea stands out as one of the few economies globally experiencing a productivity boost from artificial intelligence. However, analysts from Bank of America warn that rising tensions between the U.S. and China regarding semiconductor technology could pose a challenge to this growth.
According to a report from Bank of America Global Research, the semiconductor sector represents 17% of South Korea’s exports, highlighting the country’s significant benefit from the AI boom with exports increasing over 50% year-over-year. Analysts predict that South Korea’s substantial investments in AI research and development, coupled with an increasing number of AI-related patents, will enhance its standing in AI adoption in the long run.
Nonetheless, the report also notes that geopolitical tensions could negatively impact the semiconductor supply chain. Specifically, the ongoing discord between the U.S. and China may hinder AI’s growth prospects for South Korea. Although the country has sought to diversify its chip exports away from China, the report states that in 2023, over 30% of its chip exports were directed to China and Hong Kong, with an equivalent share going to the U.S.
Bank of America’s analysts highlighted that escalating geopolitical tensions, particularly if the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, could greatly affect South Korea’s memory semiconductor export market.
Furthermore, South Korean chip manufacturers rely on China for certain components and equipment essential to chip production. Any disruption in the supply chain due to ongoing tensions would pose challenges for these firms in acquiring the necessary tools for chip manufacturing.
The U.S. has reportedly requested that South Korea limit its exports to China of machinery and technology for producing memory chips and advanced logic chips, specifically targeting those more advanced than 14-nanometer and DRAM memory chips greater than 18-nanometer. South Korean officials are currently deliberating the U.S. request, taking into account the potential impact on major corporations such as Samsung and SK Hynix, which have significant operations in China, South Korea’s largest trading partner.
Additionally, the Biden administration is contemplating the use of the foreign direct product rule on allies that continue to sell chipmaking tools and equipment to China. This regulation would prohibit the export of any goods manufactured using a specified percentage of U.S. intellectual property to certain countries.