South Korea is experiencing a significant productivity boost from artificial intelligence, making it one of the few economies globally to benefit from this trend. However, analysts at Bank of America have warned that rising tensions between the U.S. and China regarding semiconductors could impede South Korea’s growth trajectory.
According to a report by Bank of America Global Research, the semiconductor industry is crucial for South Korea, comprising 17% of the nation’s exports. The report highlights that South Korea has been the primary beneficiary of the AI surge, with exports rising over 50% year-over-year. The analysts believe that the country’s substantial investment in AI research and development, along with an increasing number of AI-related patents, will enhance its leadership in AI integration in the long run.
Nevertheless, analysts caution that potential geopolitical tensions could disrupt the semiconductor supply chain. The ongoing discord between the U.S. and China may threaten AI progress in South Korea. Despite diversifying chip exports to other regions, the report notes that over 30% of South Korea’s chip exports were to China and Hong Kong in 2023, with a similar share directed to the U.S.
Bank of America analysts stated that if geopolitical tensions escalate 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 chip exports.
Additionally, South Korean chip manufacturers rely on China for essential chipmaking components and equipment. Any disruption in the supply chain due to escalating tensions could hinder South Korean companies’ ability to procure necessary tools for chip production.
Reportedly, the U.S. has requested that South Korea limit exports to China of equipment and technology used in manufacturing memory chips and advanced logic chips, particularly those that exceed 14-nanometer and 18-nanometer specifications. South Korean officials are reportedly considering this request, taking into account potential consequences for major South Korean corporations such as Samsung and SK Hynix, which have substantial operations in China—their largest trading partner.
Furthermore, the Biden administration is reportedly contemplating applying an export control measure known as the foreign direct product rule on allies that continue to supply chipmaking tools and equipment to China. This rule restricts the export of any goods to a country if they are produced using a specified percentage of U.S. intellectual property components.