Bank of America analysts have highlighted South Korea as one of the few economies experiencing a significant productivity boost due to artificial intelligence (AI). However, they caution that escalating U.S.-China tensions surrounding the semiconductor industry may pose challenges to the nation’s growth.
The semiconductor sector represents a substantial 17% of South Korea’s exports, and the country has emerged as a key beneficiary of the recent AI boom, with exports surging over 50% year-over-year. Analysts believe that South Korea’s heavy investment in AI research and development, coupled with an increasing number of AI-related patents, will further solidify its position in AI integration and innovation.
Nevertheless, analysts are wary of the potential impact of geopolitical tensions on the semiconductor supply chain, particularly the ongoing discord between the U.S. and China. While South Korea has been diversifying its chip exports away from China to other regions, over 30% of its chip exports still went to China and Hong Kong in 2023, with a similar proportion directed towards the U.S.
In light of these developments, analysts warn that if U.S. tensions escalate and additional trade restrictions are imposed on the export of advanced or AI-related chips to China, this could significantly hinder South Korea’s memory semiconductor exports. Moreover, South Korean chip manufacturers rely on China for essential components and equipment, and any disruptions could challenge their production capabilities.
The U.S. has reportedly advised South Korea to restrict the export of chip-making equipment and technologies to China, specifically targeting logic chips more advanced than 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are contemplating this request due to potential consequences for major tech firms like Samsung and SK Hynix, both of which have significant operations in China.
Additionally, the Biden administration is contemplating the implementation of an export control measure known as the foreign direct product rule, aimed at allies that continue to export chipmaking equipment to China. This regulation would prevent the export of goods produced with a certain percentage of U.S. intellectual property, potentially intensifying the strain on global supply chains.
In summary, while South Korea is currently thriving in the AI-driven semiconductor market, external geopolitical factors may create hurdles that could impact future growth. However, the country’s strong foundation in AI research and its adaptability in supply chain management may well position it to navigate these challenges effectively. With a focus on innovation, South Korea can remain resilient and continue to leverage its strengths in the global economy moving forward.