South Korea is currently experiencing a notable productivity increase fueled by artificial intelligence (AI), positioning it as one of the few economies benefitting from this technology on a global scale. However, recent geopolitical tensions, particularly between the U.S. and China concerning semiconductor manufacturing, pose potential risks to this growth, according to analysts from Bank of America.
The semiconductor sector plays a vital role in South Korea’s economy, constituting 17% of its exports, with AI-related exports surging over 50% year-over-year. The report highlights South Korea as the leading beneficiary of the AI boom and anticipates that the country’s substantial commitment to AI research and development, alongside a rising number of related patents, will enhance its AI integration further.
Despite these advancements, analysts caution that geopolitical challenges could disrupt the semiconductor supply chain, particularly the escalating U.S.-China tensions. While South Korea has made strides to diversify its chip exports beyond China, over 30% of its chip exports still go to China and Hong Kong as of 2023. Additionally, the exports to the U.S. account for a similar percentage.
If U.S. trade restrictions on advanced chip exports to China intensify, it could severely impact South Korea’s memory semiconductor exports. South Korean manufacturers rely significantly on China for essential chipmaking components and equipment, and any turmoil in this relationship could hinder their production capabilities.
Reports suggest that the U.S. has also requested South Korea to limit its exports to China of vital chipmaking technology and equipment. This request is under consideration by South Korean officials, who must weigh the implications for major firms like Samsung and SK Hynix that have operations in China, its largest trading partner.
Furthermore, the Biden administration is contemplating implementing an export control measure known as the foreign direct product rule, targeting allies that continue to supply chipmaking tools to China. This rule would restrict the export of goods manufactured with a particular percentage of U.S. intellectual property.
In summary, while South Korea shows promise as a leader in AI and semiconductor exports, it must navigate the complex landscape of international relations carefully to sustain its momentum. There is hope that, with strategic planning and collaboration, South Korea can mitigate these geopolitical risks and continue to thrive in the fields of AI and technology.
This situation presents an opportunity for South Korea to strengthen its position in innovative technologies, potentially leading to new partnerships and advancements in the face of challenges. The resilience of its industries could pave the way for a robust economic future that continues to leverage AI for growth and productivity.