South Korea has emerged as one of the few economies reaping productivity gains from artificial intelligence (AI), according to Bank of America analysts. They highlighted that the country has seen a remarkable increase in AI-related exports, which surged over 50% year-over-year. The semiconductor sector plays a crucial role, representing 17% of South Korea’s exports and being a significant contributor to the AI boom.
Analysts believe South Korea’s robust investment in AI research and development, along with a rising number of AI patents, positions it favorably for further advancements in AI adoption in the future. However, they caution that ongoing U.S.-China tensions, particularly over semiconductor supply chains, could pose risks to this growth trajectory.
Despite efforts to diversify its chip exports beyond China, over 30% of South Korea’s chip exports still go to China and Hong Kong, with a comparable percentage heading to the U.S. As geopolitical conflicts escalate, the potential for increased trade restrictions on advanced and AI-related chip exports to China could significantly impact South Korean memory semiconductor exports.
Furthermore, South Korean chip makers rely on China for certain manufacturing components and equipment. Disruption in the supply chain due to geopolitical tensions could hinder their ability to source essential tools for chip production. The U.S. has requested that South Korea limit exports of specific chipmaking technologies to China, which has led to deliberations among South Korean officials about the implications for major firms like Samsung and SK Hynix that have substantial operations in China.
In addition, the Biden administration is contemplating the application of the foreign direct product rule, which would prevent exports of certain goods from ally nations to China if those goods contain a significant percentage of U.S. intellectual property.
This situation reflects not only the flourishing of South Korea’s tech sector but also the challenges posed by international relations. It is a pivotal moment for South Korea to strengthen its semiconductor industry while navigating complex geopolitical dynamics.
In summary, while South Korea benefits from the AI surge in terms of productivity and exports, it must carefully balance these advancements against potential geopolitical risks to sustain its growth. The resilience and adaptability demonstrated by the South Korean tech sector could pave the way for continued innovation and leadership in AI and semiconductor technologies amid global uncertainties.