South Korea is experiencing a notable productivity increase driven by artificial intelligence, distinguishing itself as one of the few economies benefiting significantly from this technological advance. According to analysts at Bank of America, while South Korea is thriving in AI, potential challenges loom due to escalating U.S.-China tensions regarding semiconductor supply chains.
The semiconductor sector is crucial for South Korea, making up 17% of its exports. A recent report from Bank of America Global Research indicates that the nation is reaping the rewards of the AI boom, with exports surging over 50% year-over-year. The bank’s analysts project that South Korea’s substantial investments in AI research and development, along with an increasing number of AI-related patents, will enhance its standing in AI utilization in the future.
Nevertheless, analysts caution that geopolitical factors might impede this growth. The U.S.-China tensions, in particular, pose a risk to the semiconductor supply chain. Despite efforts to diversify chip exports beyond China, both China and Hong Kong accounted for more than 30% of South Korea’s chip exports in 2023, with a similar percentage directed towards the U.S. should tensions escalate and the U.S. imposes further trade restrictions on advanced AI-related chip exports to China, it could seriously impact South Korea’s memory semiconductor exports, analysts warn.
Moreover, the dependency of South Korean chip manufacturers on China for essential components and equipment raises further concerns. Disruptions in this supply chain could complicate operations for South Korean firms.
Reports indicate that the U.S. has requested South Korea limit exports of technology and equipment essential for manufacturing advanced memory chips and logic chips to China. South Korean officials are currently evaluating this request, considering potential repercussions for major firms like Samsung and SK Hynix that have significant operations in China, its largest trading partner.
In parallel, the Biden administration is contemplating the implementation of an export control measure known as the foreign direct product rule aimed at allies continuing to supply chipmaking tools and equipment to China. This measure would restrict the export of any goods produced using a certain percentage of U.S. intellectual property components.
In summary, South Korea stands poised at a unique intersection of opportunity and challenge. The advances made in AI could propel its economy forward, yet these benefits could be jeopardized if geopolitical tensions disrupt its semiconductor supply chains. As the global market for AI and chips evolves, South Korea’s proactive strategies could help mitigate risks and capitalize on its strengths in these vital sectors. The nation’s resilience and innovation in navigating these challenges present a hopeful outlook for its continued growth in the AI arena.