South Korea stands out as one of the few economies benefiting from a spike in productivity thanks to advancements in artificial intelligence, according to analysts at Bank of America. However, the ongoing tensions between the United States and China regarding semiconductors may pose a risk to its economic growth.
The semiconductor industry is vital for South Korea, representing 17% of its total exports. The nation has experienced a notable increase in AI-related exports, which have surged by over 50% year-over-year, positioning South Korea as a significant beneficiary of the AI boom. Analysts believe that the country’s substantial investments in AI research and development, along with a rising number of AI-related patents, could enhance its standing in AI adoption moving forward.
Conversely, the report cautions that potential geopolitical tensions could impact the semiconductor supply chain. South Korea’s chip exports to China and Hong Kong accounted for over 30% in 2023, and restrictions imposed by the U.S. on advanced chip exports to China could severely affect South Korean memory chip exports. Moreover, South Korean chip manufacturers rely on China for crucial components and equipment needed for production, meaning that any supply chain disruptions could hamper their operations.
The Biden administration has reportedly requested South Korea to limit exports to China of specific chip-making technologies. This request is under consideration, as it carries significant implications for major South Korean firms like Samsung and SK Hynix, which maintain operations in China, their largest trading partner.
Additionally, the U.S. government is contemplating implementing stringent export controls on allies, such as the foreign direct product rule, targeting nations that continue to provide chipmaking tools to China. This rule aims to restrict the export of products containing a certain threshold of U.S. intellectual property.
Despite these challenges, there are promising signs for South Korea’s future in AI and semiconductors, provided it navigates the geopolitical landscape carefully. As the global demand for AI technologies continues to grow, South Korea’s groundwork in this sector could lead to sustained economic advancements and innovation.
This situation not only highlights the importance of AI in global markets but also the intricate interplay between international relations and technological advancement. As South Korea continues to adapt, it might emerge as a leader in the AI field, fostering innovation and contributing positively to its economy, even in a challenging geopolitical climate.