South Korea is currently experiencing a productivity boost driven by artificial intelligence, setting it apart from many global economies. However, analysts from Bank of America warn that ongoing tensions between the U.S. and China over semiconductor technology could present challenges to this growth.
According to a report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports, and the country has significantly benefited from the AI boom, with exports rising by over 50% compared to last year. Analysts remain optimistic, predicting that South Korea’s substantial investment in AI research and development, along with a surge in AI-related patents, will further enhance its role in the field.
Despite this positive outlook, the report cautions that potential geopolitical conflicts might impact the semiconductor supply chain. The analysts highlighted the increasing friction between the U.S. and China as a particular concern for South Korea’s AI growth. Although South Korea has made efforts to diversify its chip exports away from China, the report notes that China and Hong Kong still accounted for over 30% of its chip exports in 2023, with a similar proportion going to the U.S.
Bank of America analysts warned that an escalation in geopolitical tensions, particularly if the U.S. imposes stricter trade restrictions on advanced and AI-related chip exports to China, could severely affect South Korean memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for certain components and equipment essential for chip production. Disruptions in the supply chain due to rising tensions would complicate the acquisition of necessary production tools.
The U.S. has reportedly urged South Korea to limit exports to China of equipment and technology required for producing memory and advanced logic chips, especially those using technology more advanced than 14-nanometer for logic chips and over 18-nanometer for DRAM memory chips. South Korean officials are currently considering this request, weighing its potential impact on major domestic players like Samsung and SK Hynix, which have significant operations in China.
In addition, the Biden administration is exploring the use of an export control measure known as the foreign direct product rule aimed at allies that continue to sell chip manufacturing equipment and tools to China. This rule would prohibit the export of any product to any nation if it’s manufactured using a specified percentage of U.S. intellectual property.