South Korea stands out as one of the few economies experiencing a surge in productivity driven by artificial intelligence (AI). However, challenges loom on the horizon due to escalating tensions between the U.S. and China regarding the semiconductor industry, which could impact South Korea’s growth trajectory, according to a Bank of America report.
The semiconductor sector is critical for South Korea, accounting for 17% of its total exports. The nation has emerged as a significant player benefiting from the AI revolution, with exports reportedly increasing by over 50% year-over-year. Analysts project that South Korea’s considerable investments in AI research and development, coupled with a rising number of AI-related patents, will likely enhance its position in AI adoption over the long term.
Nevertheless, the report cautioned that geopolitical conflicts could disrupt the semiconductor supply chain. Despite diversifying its chip exports beyond China, the nation still relies heavily on the Chinese market, with over 30% of its chip exports destined for China and Hong Kong in 2023. Similarly, chip exports to the United States account for a comparable proportion.
The potential for increased U.S. trade restrictions on advanced semiconductor exports to China poses a significant risk for South Korea’s memory semiconductor exports. This is especially pertinent as South Korean manufacturers are reliant on China for essential chipmaking components and equipment. Should these tensions escalate, South Korean firms could face greater challenges in sourcing the necessary tools for chip production.
The Biden administration has also reportedly requested that South Korea limit its exports of chipmaking technology to China, particularly for advanced memory chips and logic chips. South Korean officials are currently deliberating this request, weighing the implications for major domestic companies such as Samsung and SK Hynix that operate in China, its largest trading partner.
In a broader context, the U.S. is contemplating the implementation of export controls that could affect allies selling chipmaking tools to China. This control would prevent the export of products manufactured with a certain percentage of U.S. intellectual property.
Overall, while South Korea is leading a promising advancement in AI-driven productivity, it must navigate these geopolitical challenges carefully. The emergence of innovative solutions and collaboration in technology could help mitigate the impact of these tensions and sustain South Korea’s growth in the semiconductor and AI industries.
With ongoing investment and strategic partnerships, there is hope that South Korea can continue to thrive amidst the complexities of international trade and technology competition.