Bank of America analysts have noted that South Korea is experiencing a productivity boost from artificial intelligence, making it one of the few economies benefiting significantly from this technology. The analysts highlighted that the semiconductor sector is pivotal to South Korea’s economy, accounting for 17% of its exports. Notably, the country has seen over a 50% year-over-year increase in exports, positioning itself as a leading beneficiary of the AI boom.
Looking ahead, analysts predict that South Korea’s robust investments in AI research and development, along with a rising number of AI-related patents, will strengthen its adoption of AI over time. However, they caution that escalating U.S.-China tensions regarding semiconductor exports may pose challenges to this growth.
The semiconductor industry is intricately linked with global supply chains, and South Korea has historically relied on China for a significant share of its chip exports, which comprised over 30% in 2023. Should geopolitical tensions intensify, particularly if the U.S. imposes further trade restrictions on advanced chips exported to China, it could greatly impact South Korea’s memory semiconductor exports.
Moreover, South Korean manufacturers rely on China for essential chipmaking components and equipment. Disruptions in this supply chain could complicate the production processes for these firms.
The U.S. has requested that South Korea restrict its exports to China concerning equipment and technology used to manufacture advanced semiconductor chips. This request is being evaluated by South Korean officials, who are mindful of the potential impact on major domestic companies like Samsung and SK Hynix, which have significant operations in China.
In conjunction, the Biden administration is contemplating an export control mechanism aimed at allies who continue to sell chipmaking tools to China. This mechanism would limit the export of goods manufactured with a certain percentage of U.S. intellectual property to any country.
Despite the challenges posed by geopolitical tensions, South Korea’s strong position in the drive for AI adoption offers a promising outlook for the future. With strategic planning and diversified partnerships, the nation can continue to bolster its economy and enhance its competitive edge in the global semiconductor market.
Overall, while challenges loom, South Korea’s focus on innovation and development positions it uniquely to navigate these turbulent times, potentially emerging stronger in the face of adversity.