Bank of America analysts have highlighted that South Korea is among the few economies experiencing a productivity increase due to artificial intelligence. However, they caution that ongoing tensions between the U.S. and China regarding semiconductors could pose risks to South Korea’s growth.
The semiconductor sector constitutes 17% of South Korea’s exports, and according to a Bank of America Global Research report, the country is the largest beneficiary of the AI surge, with exports reportedly rising over 50% compared to the previous year. Analysts project that South Korea’s significant investment in AI research and development, combined with a growing number of AI-related patents, will enhance its position in AI adoption moving forward.
Nevertheless, the analysts warn that geopolitical tensions may impact the semiconductor supply chain adversely, particularly the escalating friction between the U.S. and China, which could hinder AI growth in South Korea. Although South Korea has diversified its semiconductor exports beyond China, over 30% of its chip exports in 2023 still went to China and Hong Kong, with a similar portion sent to the United States.
Should tensions escalate further and the U.S. impose additional restrictions on exports of advanced or AI-related chips to China, it could severely affect South Korea’s memory semiconductor exports, according to the Bank of America report.
Moreover, South Korean chip manufacturers rely on China for certain chipmaking components and equipment. Disruptions in the supply chain due to increasing tensions could complicate the ability of South Korean companies to obtain essential tools for chip production.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology used in the manufacturing of memory and advanced logic chips, specifically those more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are reportedly deliberating on this request amid concerns over potential repercussions for major South Korean firms such as Samsung and SK Hynix, which have significant operations in China, the country’s largest trading partner.
Additionally, the Biden administration is reportedly contemplating using an export control known as the foreign direct product rule against allies that continue to supply chipmaking tools and equipment to China. This regulation would prevent any goods from being exported to any country if they are manufactured using a specified percentage of U.S. intellectual property components.