According to analysts from Bank of America, South Korea stands out as one of the few economies reaping the benefits of a productivity surge driven by artificial intelligence (AI). The nation’s semiconductor industry, which constitutes 17% of its exports, has seen an impressive year-over-year increase of over 50% in exports attributed to the AI boom. The analysts emphasize that South Korea’s substantial investments in AI research and development, along with a growing portfolio of AI-related patents, are likely to strengthen its position in AI adoption moving forward.
However, the report highlights that geopolitical issues, particularly the rising tensions between the U.S. and China regarding semiconductor technology, could pose challenges to South Korea’s growth prospects. Despite steps taken to diversify chip exports away from China, over 30% of South Korea’s chip exports in 2023 were still directed towards China and Hong Kong, paralleling the amount exported to the U.S.
Bank of America warns that if these geopolitical tensions escalate—potentially leading to increased U.S. trade restrictions on AI or advanced chips exported to China—this could significantly impact South Korea’s memory semiconductor export capabilities. Moreover, South Korean manufacturers heavily rely on China for essential chipmaking components and equipment. Disruptions to this supply chain could complicate production processes for companies like Samsung and SK Hynix, both of which have significant business operations in China, South Korea’s largest trading partner.
In light of these circumstances, South Korea’s government is reportedly deliberating a request from the U.S. to limit exports of specific chip-making technologies to China. This request may have important implications for South Korean firms, especially given the geopolitical landscape.
Furthermore, the Biden administration is exploring the implementation of an export control measure known as the foreign direct product rule. This rule would restrict the export of any goods manufactured with a significant percentage of U.S. intellectual property, affecting allies who continue to supply China with chip-making tools and equipment.
Despite the challenges presented by geopolitical tensions, South Korea’s emphasis on AI integration and innovation presents a promising pathway for future growth. The nation’s ability to navigate these complexities will be vital in maintaining its competitive edge in the semiconductor industry and realizing the full potential of AI advancements.
In summary, while South Korea is currently benefiting from AI-related growth in its economy, potential geopolitical tensions with the U.S. and China may pose significant challenges. The future remains hopeful, contingent upon the country’s strategic responses to these dynamics.