South Korea stands out as one of the few economies globally experiencing a productivity increase thanks to artificial intelligence, although rising tensions between the U.S. and China regarding semiconductor technology may hinder its growth, according to Bank of America analysts.
The semiconductor sector is crucial for South Korea, representing 17% of the nation’s exports. A recent report from Bank of America Global Research highlighted that the nation has emerged as a leading beneficiary of the AI surge, with semiconductor exports rising over 50% year-on-year. Long-term forecasts from analysts suggest that South Korea’s significant investments in AI research and development, along with a growing portfolio of AI-related patents, will strengthen its AI adoption.
Nevertheless, the analysts cautioned that potential geopolitical conflicts could negatively impact the semiconductor supply chain. The ongoing strain between the U.S. and China poses a particular threat to South Korea’s AI advancements. Although South Korea has been actively diversifying its chip exports beyond China, in 2023, China and Hong Kong accounted for over 30% of its semiconductor exports, with the U.S. receiving a similar share.
The analysts warned that if geopolitical tensions intensify and the U.S. imposes new trade restrictions on advanced or AI-related semiconductor exports to China, it could severely impact South Korea’s memory chip exports.
Moreover, South Korean semiconductor manufacturers rely on China for certain components and equipment necessary for chip production. Any disruption in this supply chain could complicate efforts for South Korean companies to acquire essential tools for chip manufacturing.
Reports suggest that the U.S. has requested South Korea to limit exports to China of machinery and technology essential for creating memory chips and advanced logic chips, particularly those more advanced than 14-nanometer and DRAM chips above 18-nanometer specifications. South Korean officials are reportedly contemplating this request due to potential repercussions for major companies like Samsung and SK Hynix, which operate within China, South Korea’s largest trading partner.
In parallel, the Biden administration is said to be evaluating the application of the foreign direct product rule on allies who continue supplying chipmaking tools and equipment to China. This rule prohibits the export of any goods to any nation if they are produced with a specific percentage of U.S. intellectual property.