South Korea is uniquely positioned as one of the few economies benefiting from a surge in productivity driven by artificial intelligence, although rising tensions between the U.S. and China regarding semiconductor technology may pose risks to its growth, according to analysts at Bank of America.
The semiconductor sector is vital for South Korea, constituting 17% of its exports. A recent report from Bank of America Global Research highlights that the country has emerged as the biggest beneficiary of the AI surge, with exports rising over 50% year-on-year. Analysts believe that South Korea’s substantial investments in AI research and development, coupled with an increasing number of AI-related patents, will bolster its standing in AI adoption in the long run.
Nonetheless, the report cautions that geopolitical tensions, particularly between the U.S. and China, could negatively impact the semiconductor supply chain, which may hinder AI growth in South Korea. Despite diversifying its chip exports beyond China to other regions, China and Hong Kong still constituted over 30% of South Korea’s chip exports in 2023, with similar figures for exports to the U.S.
Should geopolitical strains worsen and the U.S. implement further trade restrictions on advanced semiconductor exports to China, it could significantly impact South Korean memory chip exports, the analysts warned.
Furthermore, South Korean chip manufacturers rely on China for essential components and equipment necessary for chip production. Disruptions in the supply chain due to escalating tensions could complicate access to these critical tools.
Additionally, it has been reported that the U.S. has requested South Korea to limit exports to China of equipment and technology necessary for producing memory chips and advanced logic chips. This includes specific restrictions on logic chips more advanced than 14-nanometer and DRAM chips beyond 18-nanometer. South Korean officials are reportedly contemplating this request due to potential consequences for major companies such as Samsung and SK Hynix, which have significant operations in China.
Meanwhile, the Biden administration is said to be considering implementing an export control measure known as the foreign direct product rule on allies that continue to supply chipmaking tools and equipment to China. This rule would prevent the export of any good to any country if it is produced with a certain proportion of U.S. intellectual property components.