South Korea is experiencing a notable increase in productivity driven by artificial intelligence, positioning itself as one of the few economies thriving amid the AI revolution. According to analysts from Bank of America, the nation has harnessed the AI boom effectively, with its exports rising over 50% year-over-year. Impressively, the semiconductor industry, which constitutes 17% of South Korea’s exports, has become a significant beneficiary of this technological advancement.
The report emphasizes that South Korea’s substantial investments in AI research and development, alongside an increasing number of AI-related patents, bode well for its long-term growth in AI adoption. However, looming geopolitical tensions, especially between the United States and China, present potential risks to this growth trajectory. Analysts highlighted that any escalation of these tensions could impact the semiconductor supply chain crucial to South Korea’s economy.
Currently, despite efforts to diversify its chip exports away from China, more than 30% of South Korea’s chip exports in 2023 still went to China and Hong Kong, with similar figures for the U.S. This dependence makes South Korea vulnerable to supply chain disruptions should bilateral tensions escalate further. Bank of America analysts warned that any additional trade restrictions imposed by the U.S. on advanced or AI-related chip exports to China could significantly undermine South Korea’s memory semiconductor exports.
Moreover, South Korean manufacturers rely on China for critical components and equipment needed for chip production, meaning any disruption in this supply chain could hamper their manufacturing capabilities. The U.S. administration has reportedly requested that South Korea limit its exports of certain chip-making technologies to China, raising concerns about potential repercussions for major South Korean firms such as Samsung and SK Hynix, which have operations in China — their largest trading partner.
As the situation develops, it is essential for South Korea to navigate these complex geopolitical waters wisely while continuing to innovate and invest in AI. The current AI productivity boost and the country’s efforts in diversification could be key to maintaining stability and growth in the face of global uncertainties.
In summary, South Korea stands at a crucial juncture where its advancements in AI and semiconductors could drive economic growth, yet it faces significant risks from international trade tensions. If managed effectively, the country could continue to lead in AI technology while mitigating risks from geopolitical challenges.