South Korea is among the few economies benefiting from increased productivity due to artificial intelligence, although rising U.S.-China tensions over semiconductor supply chains could hinder its growth, according to analysts at Bank of America.
The semiconductor industry comprises 17% of South Korea’s exports, and the nation has emerged as a leading benefactor of the AI surge, with exports climbing over 50% year-over-year, as reported by Bank of America Global Research. Analysts expect that South Korea’s significant investments in AI research and development, along with a rising number of AI-related patents, will further enhance its AI capabilities.
However, analysts caution that escalating geopolitical tensions could impact the semiconductor supply chain, particularly due to increasing conflicts between the U.S. and China. Although South Korea has begun diversifying its chip exports, over 30% of its chip exports in 2023 were still destined for China and Hong Kong, with similar figures for exports to the U.S.
Bank of America analysts noted that if tensions between the U.S. and China escalate and additional trade restrictions on advanced or AI-related chip exports to China are implemented, it could severely affect South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment used in chip production. Disruption in the supply chain resulting from heightened tensions would complicate the procurement of necessary tools for chip manufacturing.
The U.S. has reportedly requested South Korea to limit exports to China of equipment and technologies necessary for producing memory chips and advanced logic chips, particularly those more advanced than 14-nanometer and DRAM memory chips greater than 18-nanometer. South Korean officials are considering this request due to possible impacts on major South Korean companies like Samsung and SK Hynix, which have operations in China, its largest trading partner.
In the interim, the Biden administration is reportedly contemplating the use of an export control measure known as the foreign direct product rule against allies that continue selling chipmaking tools to China. This regulation would prevent the export of any product made using a certain percentage of U.S. intellectual property to any country.