Bank of America analysts have reported that South Korea stands out as one of the few economies experiencing a boost in productivity linked to advancements in artificial intelligence (AI). However, ongoing tensions between the U.S. and China over semiconductor technology could pose a significant challenge to this growth.
The semiconductor sector is a crucial element of South Korea’s economy, representing 17% of its total exports. According to the analysts, South Korea has emerged as a primary beneficiary of the AI boom, witnessing a remarkable over 50% increase in its export levels year-over-year. This growth is supported by substantial investments in AI research and development and an increasing number of related patents, which the analysts believe will continue to solidify the country’s role in AI adoption over the long term.
Nonetheless, potential geopolitical strains—particularly amid rising U.S.-China conflicts—may impact the semiconductor supply chain. Despite South Korea’s efforts to diversify its chip exports beyond China, the report notes that China and Hong Kong accounted for over 30% of South Korea’s chip exports in 2023, with the U.S. being a significant market as well.
Analysts express concern that if tensions escalate, particularly if the U.S. enacts further trade restrictions on advanced or AI-related chip exports to China, South Korea’s memory semiconductor exports could suffer extensively. Moreover, South Korean chip manufacturers rely on China for various components and equipment essential for chipmaking. Any disruptions in this supply chain could hinder their ability to produce chips.
The U.S. has allegedly requested South Korea to limit its exports to China concerning equipment and technology used in manufacturing memory chips and cutting-edge logic chips. South Korean officials are reportedly considering the implications of these requests on major domestic companies such as Samsung and SK Hynix, both of which have significant operations in China, the country’s largest trading partner.
In an ongoing effort to limit China’s access to advanced technology, the Biden administration is reportedly contemplating implementation of the foreign direct product rule on allies that continue to sell chipmaking tools to China. This rule would prevent any good made with a specific percentage of U.S. intellectual property from being exported to any country.
In summary, while South Korea is leveraging AI to enhance its productivity and economic growth significantly, the geopolitical landscape, especially the friction between the U.S. and China, presents challenges that could threaten this progress. Despite these risks, South Korea’s commitment to innovation and adaptation may position it well to navigate through the difficult waters of the global semiconductor industry. As countries increasingly turn to AI to fuel economic development, South Korea’s advancements could set a precedent for others, embodying a hopeful narrative amid uncertainty.