South Korea stands out as one of the few economies benefiting from a productivity surge attributed to artificial intelligence. However, analysts from Bank of America warn that escalating tensions between the U.S. and China over semiconductor exports may pose risks to this growth.
According to a report by Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports. The country has emerged as the leading beneficiary of the AI boom, with exports rising over 50% year-on-year. The analysts believe that South Korea’s significant investments in AI research and development, alongside an increasing number of AI-related patents, will strengthen its ability to adopt AI technologies in the future.
On the downside, analysts caution that geopolitical strains, particularly the U.S.-China dynamic, could negatively impact the semiconductor supply chain. Despite South Korea diversifying its chip exports to other regions, China and Hong Kong accounted for more than 30% of its chip exports in 2023, with exports to the U.S. being similar in value.
Should tensions escalate further and the U.S. impose stricter trade limitations on the export of advanced chips to China, this could severely affect South Korea’s memory semiconductor exports, according to Bank of America analysts.
Moreover, South Korean semiconductor manufacturers rely on China for various chipmaking components and equipment. Disruptions in this supply chain could complicate the ability of South Korean companies to obtain essential tools for chip production.
The U.S. has reportedly urged South Korea to limit its exports to China of equipment and technologies used in manufacturing memory and advanced logic chips, specifically those exceeding 14-nanometer and 18-nanometer specifications. South Korean officials are considering this request due to potential impacts on major companies like Samsung and SK Hynix, which have substantial operations in China, the country’s largest trading partner.
In a related development, the Biden administration is contemplating the implementation of an export control regulation known as the foreign direct product rule, targeting allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of any goods manufactured with a specified percentage of U.S. intellectual property to any country.