South Korea stands out as one of the few economies experiencing a productivity surge due to artificial intelligence (AI), but ongoing tensions between the U.S. and China over semiconductor supply chains may pose significant challenges to its growth. According to analysts from Bank of America, the semiconductor sector is crucial for South Korea, constituting 17% of its total exports. The country has emerged as a major beneficiary of the recent AI boom, with exports experiencing a remarkable increase of over 50% year-on-year.
Long-term projections indicate that South Korea’s substantial investments in AI research and development, coupled with an escalating number of AI-related patents, will enhance its dominance in AI adoption. However, the analysis cautions that geopolitical tensions, particularly between the U.S. and China, could negatively impact the semiconductor supply chain, potentially hindering the growth of AI in South Korea.
As it stands, China and Hong Kong accounted for more than 30% of South Korea’s chip exports in 2023, with a comparable portion going to the U.S. Should relations deteriorate further and the U.S. implement additional trade restrictions on advanced chips exported to China, it could significantly affect South Korea’s memory semiconductor exports.
Furthermore, South Korean chip manufacturers rely on China for certain components and equipment essential for chip production. A disruption in the supply chain could hinder their ability to secure the necessary tools for manufacturing.
In light of these challenges, the U.S. has reportedly requested South Korea to limit exports to China regarding equipment and technology for fabricating memory chips and advanced logic chips. This has prompted South Korean officials to deliberate the request carefully due to potential repercussions for major domestic firms like Samsung and SK Hynix, which have substantial operations in China, their largest trading partner.
Additionally, the Biden administration is contemplating the implementation of an export control mechanism known as the foreign direct product rule, targeting allies that persist in supplying chipmaking tools to China. This rule would restrict the export of any goods manufactured with a significant incorporation of U.S. intellectual property.
Overall, while South Korea is poised to thrive in the AI landscape, it must navigate the complexities of global trade relationships and geopolitical dynamics that threaten to disrupt its semiconductor industry.
In a nutshell, South Korea’s advancements in AI show promise, but the ripple effects of international tensions could serve as a double-edged sword, prompting both caution and a call for strategic adaptation among industry leaders. This situation underscores the importance of diplomatic channels and international cooperation in an increasingly interconnected economy.