South Korea stands out as one of the few economies witnessing a productivity surge due to artificial intelligence, though analysts from Bank of America warn that escalating U.S.-China tensions regarding semiconductor technology could hinder further growth.
According to a report from Bank of America Global Research, the semiconductor sector constitutes 17% of South Korea’s exports, and the nation has been a significant beneficiary of the AI surge, with exports increasing by over 50% year-on-year. Analysts project that South Korea’s substantial investments in AI research and development, coupled with an increasing number of AI-related patents, will strengthen its position in AI adoption moving forward.
However, potential geopolitical tensions are a concern for the semiconductor supply chain, particularly due to rising conflicts between the U.S. and China, which could present challenges to South Korea’s AI growth. Despite diversifying its chip exports from China to other regions, China and Hong Kong accounted for over 30% of South Korea’s chip exports in 2023, with exports to the U.S. being roughly comparable.
The analysts caution that should geopolitical strains escalate, particularly if the U.S. imposes further trade restrictions on advanced or AI-related chip exports to China, it could severely impact South Korea’s memory semiconductor export sector.
Additionally, South Korean chip manufacturers rely on China for certain components and equipment essential for chip production. Hence, any disruption in the supply chain due to geopolitical tensions may complicate the ability of South Korean companies to secure the necessary tools for chip manufacturing.
The U.S. has reportedly requested that South Korea limit its exports to China of equipment and technology for producing memory chips and advanced logic chips, particularly those surpassing 14-nanometer logic and 18-nanometer DRAM. South Korean officials are evaluating this request amid concerns over potential consequences for prominent domestic companies, including Samsung and SK Hynix, that have operations in China, its largest trading partner.
Furthermore, the Biden administration is reported to be contemplating the implementation of an export control measure known as the foreign direct product rule against allies that maintain the sale of chipmaking tools and equipment to China. This rule would prohibit the export of any goods produced using a specified percentage of U.S. intellectual property to any country.