South Korea’s remarkable economic growth driven by artificial intelligence (AI) could face a significant challenge due to escalating tensions between the United States and China over semiconductor chips, according to a report by Bank of America analysts. The country, which has emerged as a leading beneficiary of the AI boom, has witnessed a remarkable surge in exports, with a year-over-year increase of over 50%, primarily driven by its high investment in AI research and development.
However, the report highlights the potential impact of geopolitical tensions on South Korea’s semiconductor supply chain, particularly concerning the U.S.-China relationship. The semiconductor industry, accounting for 17% of South Korea’s exports, is heavily reliant on chip exports, with China and Hong Kong constituting over 30% of the total chip exports in 2023. Although South Korea has diversified its chip exports to other regions, any disruption in the supply chain could pose significant challenges for the country’s AI growth.
The analysts further note that South Korean chip manufacturers depend on China for essential chipmaking components and equipment. In the event of heightened tensions, acquiring the necessary tools for chip production could become increasingly difficult. The U.S., possessing advanced equipment and technology for memory chips and advanced logic chips, including those beyond 14-nanometer and 18-nanometer, respectively, could potentially impose trade restrictions on chip exports to China. This scenario would significantly undermine South Korea’s memory semiconductor exports.
The potential repercussions of such restrictions are a cause for concern among South Korean officials, particularly for major firms like Samsung and SK Hynix, which have significant operations in China. Meanwhile, the Biden administration has reportedly urged allies to refrain from selling chipmaking tools and equipment to China, implementing a rule that considers the presence of U.S. intellectual property components in the manufacturing process.