According to analysts from Bank of America, South Korea is one of the few economies globally experiencing productivity growth fueled by artificial intelligence, though escalating U.S.-China tensions regarding semiconductors might pose challenges to this momentum.
The semiconductor sector constitutes 17% of South Korea’s exports, and the country has reportedly been the largest beneficiary of the AI surge, with export growth exceeding 50% year-over-year. Bank of America Global Research indicates that South Korea’s significant investments in AI research and development, coupled with an increasing number of AI-related patents, are likely to enhance its standing in AI adoption in the long run.
Nevertheless, the analysts pointed out that potential geopolitical conflicts could impact the semiconductor supply chain, especially in light of growing tensions between the U.S. and China. Although South Korea has diversified its chip exports to regions other than China, over 30% of its chip exports came from China and Hong Kong in 2023, while exports to the U.S. were approximately the same.
The report warned that any escalation in geopolitical tensions, particularly due to new U.S. trade restrictions on advanced or AI-related chip exports to China, could severely damage Korea’s memory semiconductor exports.
South Korean semiconductor manufacturers also rely on China for various components and equipment essential for chip production. Consequently, if tensions disrupt the supply chain, it would become significantly more challenging for South Korean firms to obtain the necessary tools for chip production.
Reports state that the United States has requested South Korea to limit exports to China of equipment and technology essential for manufacturing memory chips and advanced logic chips—specifically those tools designed for chips more advanced than 14-nanometer and DRAM memory chips exceeding 18-nanometer. South Korean officials are reportedly deliberating this U.S. request due to potential impacts on major South Korean corporations like Samsung and SK Hynix, both of which operate in China, the nation’s largest trading partner.
Additionally, the Biden administration is reported to be reviewing the possibility of applying export controls, specifically the foreign direct product rule, on allies who continue to sell chipmaking tools and equipment to China. This regulation would prohibit the export of any products manufactured with a specified percentage of U.S. intellectual property components, regardless of the destination country.