South Korea is experiencing a notable boost in productivity driven by advancements in artificial intelligence, positioning it as one of the few economies benefiting significantly from AI integration. However, Bank of America analysts have highlighted that escalating tensions between the U.S. and China over semiconductor supplies may pose a significant challenge to this growth trajectory.
According to a report from Bank of America Global Research, the semiconductor industry constitutes 17% of South Korea’s exports, with AI-related exports soaring by over 50% year-over-year. Analysts believe that South Korea’s substantial investments in AI research and development, along with a rising number of AI-related patents, will solidify its status as a leader in AI adoption in the long run.
Nevertheless, analysts caution that increasing geopolitical tensions, particularly surrounding U.S.-China relations, could impact the semiconductor supply chain and hinder AI advancement in South Korea. The report notes that, while South Korea has begun to diversify its chip exports from China to other regions, over 30% of its semiconductor exports still went to China and Hong Kong in 2023, with a similar proportion directed to the U.S.
The potential for United States-imposed trade restrictions on advanced AI-related chip exports to China could severely affect South Korea’s memory semiconductor exports. Additionally, South Korean chip manufacturers often rely on China for essential chipmaking components, making them vulnerable to supply chain disruptions due to geopolitical conflicts.
The U.S. has reportedly urged South Korea to limit exports to China of equipment and technology used in manufacturing advanced memory chips, a move that South Korean officials are considering, weighing the potential consequences for major companies like Samsung and SK Hynix that have operations in China.
In response to ongoing concerns, the Biden administration is contemplating the implementation of export controls such as the foreign direct product rule, which would hinder the sale of goods to any country produced with a certain percentage of U.S. intellectual property.
While challenges remain due to international tensions and dependency on supply chains, South Korea’s proactive approach to investing in AI positions it for a promising future. Such investments in technology and diversification of export markets can strengthen its economic resilience in the ever-evolving global landscape.
In summary, while South Korea’s burgeoning AI sector faces risks from global geopolitical tensions, its commitment to innovation and strategic investments could pave the way for sustained economic growth and leadership in the technology space.