South Korea is currently one of the few economies experiencing a productivity increase due to advancements in artificial intelligence, but rising tensions between the U.S. and China over semiconductor technology may hinder its progress, according to analysts from Bank of America.
The semiconductor sector is crucial to South Korea’s economy, representing 17% of the nation’s exports. The report highlights that South Korea has emerged as a leading beneficiary of the AI surge, with exports rising by over 50% compared to last year. Analysts speculate that South Korea’s substantial investment in AI research and development, along with an increase in AI-related patents, will bolster its position in adopting these technologies over the long term.
However, the analysts also point out that geopolitical tensions could impact the semiconductor supply chain significantly, particularly due to the ongoing strain between the U.S. and China. Although South Korea has been diversifying its chip exports away from China, the report notes that over 30% of its chip exports still went to China and Hong Kong in 2023.
Should the U.S. impose further trade restrictions on the export of advanced or AI-related chips to China, this could severely affect South Korea’s semiconductor exports. Furthermore, South Korean chip manufacturers rely on Chinese suppliers for certain components and equipment, meaning that any disruption in the supply chain could complicate production processes.
The Biden administration is also reportedly contemplating an export control measure known as the foreign direct product rule. This rule would limit the export of any products that incorporate a specific percentage of U.S. intellectual property, targeting allies that continue to sell chipmaking tools and equipment to China. South Korean officials are currently evaluating the potential impacts of U.S. requests to limit exports to China, particularly concerning major companies like Samsung and SK Hynix, which have significant operations in China.
In summary, while South Korea stands to benefit greatly from the AI boom, its prospects may be threatened by geopolitical dynamics impacting the semiconductor industry. Nevertheless, the focus on AI development and the country’s strong technological foundation offer hope for resilience and growth in a challenging environment. The future holds the potential for South Korea to navigate these tensions effectively and emerge as a leader in AI technology.