According to analysts from Bank of America, South Korea stands out as one of the few economies globally witnessing a productivity surge attributed to artificial intelligence (AI). However, U.S.-China tensions concerning semiconductor materials could pose potential challenges for the country’s growth.
The semiconductor sector plays a crucial role in South Korea’s economy, representing 17% of its total exports. Recent reports indicate that South Korea has emerged as a major beneficiary of the AI expansion, experiencing a remarkable over 50% year-on-year increase in exports. Analysts anticipate that the country’s substantial investment in AI research and development, along with a rising tally of AI-related patents, will bolster its position as a leader in AI implementation.
Despite these positive developments, there are concerns about the impact of geopolitical tensions on the semiconductor supply chain. Particularly, the increasing friction between the U.S. and China may complicate South Korea’s advancements in AI. While South Korea has made strides to diversify its chip exports beyond China, data shows that China and Hong Kong still accounted for over 30% of its chip exports in 2023, with a similar percentage going to the United States.
Bank of America analysts warn that should these geopolitical tensions worsen, especially with the U.S. imposing more trade restrictions on advanced semiconductor exports to China, South Korea’s memory semiconductor exports could take a significant hit. Additionally, South Korean chip manufacturers rely on China for essential chipmaking components and equipment, meaning that any supply chain disruptions could hinder their production capabilities.
Reports have surfaced indicating that the U.S. has requested South Korea to limit exports to China of specific chipmaking technologies and equipment. South Korean officials are contemplating this request, weighing its implications for major domestic firms like Samsung and SK Hynix, which have substantial operations in China, South Korea’s largest trading partner.
Furthermore, the Biden administration is reportedly considering enforcing export controls that could impact alliance countries that continue to supply chipmaking tools to China. Such measures would prevent the export of any good that incorporates a certain level of U.S. intellectual property.
In summary, while South Korea shows promising trends in AI productivity and semiconductor exports, it faces significant external challenges stemming from geopolitical tensions. The actions taken by both the U.S. and China will be crucial in determining the future trajectory of South Korea’s semiconductor and AI industries.
This underscores the importance of navigating international relations carefully to maintain economic growth and stability, especially for countries like South Korea that heavily rely on semiconductor exports. Despite these challenges, South Korea’s proactive approach towards AI and a diversified export strategy could offer a resilient path forward.