Analysts at Bank of America highlight that South Korea is one of the few economies benefiting from a productivity increase due to artificial intelligence. However, they warn that rising tensions between the U.S. and China regarding semiconductor technologies could pose challenges to the country’s growth.
As per a report from Bank of America Global Research, the semiconductor sector represents 17% of South Korea’s exports. The nation has seen over a 50% increase in exports year-over-year and is described as the largest beneficiary of the AI boom. Analysts believe that South Korea’s significant investment in AI research and development, coupled with a growing number of AI patents, will strengthen its position in AI adoption moving forward.
Despite these positive indicators, concerns arise regarding potential geopolitical tensions that could impact the semiconductor supply chain, especially amidst ongoing U.S.-China friction. While South Korea has diversified its chip exports to reduce reliance on China, over 30% of its semiconductor exports still went to China and Hong Kong in 2023, with exports to the U.S. being roughly equivalent.
Bank of America analysts state that if geopolitical tensions escalate further and the U.S. imposes additional trade restrictions on AI-related chip exports to China, it might severely affect South Korea’s memory semiconductor exports. Additionally, South Korean semiconductor manufacturers rely on China for certain components and equipment. Any disruption in supply chains due to heightened tensions could complicate production processes for these companies.
The U.S. has reportedly requested that South Korea restrict the export of equipment and technology needed for producing advanced and memory chips to China. South Korean officials are considering this request, keeping in mind the potential implications for major firms like Samsung and SK Hynix, which have significant operations in China—its largest trading partner.
In another development, the Biden administration is reportedly contemplating the implementation of an export control called the foreign direct product rule on allies that continue to provide chipmaking tools and equipment to China. This rule would prohibit the export of goods manufactured with a specified proportion of U.S. intellectual property to any country.