South Korea is experiencing a productivity increase attributed to artificial intelligence, distinguishing it from many other global economies. However, analysts from Bank of America note that escalating U.S.-China tensions regarding semiconductor technology could pose challenges to this growth.
The semiconductor sector is crucial for South Korea, representing 17% of the nation’s exports. A Bank of America Global Research report indicates that South Korea has emerged as a significant beneficiary of the AI surge, with a reported over 50% increase in exports year-over-year. Analysts believe that the country’s substantial investment in AI research and development, coupled with a rising number of AI-related patents, will reinforce its position in AI adoption in the long run.
Despite these promising indicators, analysts warn that “potential geopolitical tensions could weigh on the semiconductors supply chain,” particularly in light of the increasing tensions between the U.S. and China. While South Korea has successfully diversified its chip exports away from China towards other regions, China and Hong Kong still accounted for over 30% of its chip exports in 2023, with similar figures for exports to the U.S.
Bank of America analysts expressed concerns that should U.S.-China tensions escalate, leading to further U.S. trade restrictions on advanced chips or AI-related components exported to China, South Korea’s memory semiconductor export market would face significant challenges.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment needed for chip production. Any disruption in the supply chain due to tensions could hinder their ability to obtain the necessary tools for manufacturing chips.
Reports indicate that the U.S. has requested South Korea to limit exports to China of equipment and technology used in producing memory chips and advanced logic chips, specifically those over 14-nanometer and 18-nanometer DRAM memory chips. South Korean officials are reportedly considering this request, given its potential impact on major companies like Samsung and SK Hynix, which operate within China, its largest trading partner.
Furthermore, the Biden administration is reportedly contemplating the implementation of an export control known as the foreign direct product rule. This would prevent exports of any products manufactured with a specific percentage of U.S. intellectual property to any country, targeting allies that continue to supply chipmaking tools and equipment to China.