South Korea is currently experiencing a significant productivity boost attributed to advances in artificial intelligence (AI), as noted by analysts from Bank of America. The country’s semiconductor industry is critical to its economy, representing 17% of total exports, and has emerged as a significant beneficiary of the ongoing AI boom, with exports soaring over 50% year-over-year. The report indicates that South Korea’s considerable investment in AI research and its increasing number of related patents are likely to reinforce its leadership position in AI integration moving forward.
Nevertheless, the analysts caution that geopolitical tensions, particularly between the U.S. and China, could pose a risk to South Korea’s growth trajectory in the AI sector. While South Korea has made efforts to diversify its chip exports to markets beyond China, the report highlights that more than 30% of its semiconductor exports still go to China and Hong Kong, with a similar proportion exported to the U.S.
If the geopolitical situation deteriorates and the U.S. imposes further trade restrictions on the export of advanced AI-related chips to China, it could severely impact South Korean semiconductor exports. Additionally, South Korean manufacturers rely on China for essential chipmaking components and equipment, and any disruption in the supply chain could hinder their production capabilities.
The U.S. has reportedly asked South Korea to limit exports of crucial manufacturing technology and equipment to China, specifically targeting advanced memory chips and logic chips. South Korean officials are contemplating this request, mindful of the potential consequences for major companies like Samsung and SK Hynix that operate extensively in China.
As the Biden administration explores potential export controls, it has proposed a foreign direct product rule that would affect allies selling chipmaking tools to China. This rule would restrict exports of products derived from a specific portion of U.S. intellectual property.
In summary, while South Korea is uniquely positioned to benefit from AI advancements, it must navigate the complexities of international trade and geopolitical tensions to maintain its momentum. It is hopeful that with careful management of trade relationships, South Korea will continue to thrive in the global semiconductor market despite these challenges.