Bank of America analysts have highlighted South Korea’s unique position as a leading economy benefiting from artificial intelligence (AI) advancements. The country stands out amid global economic trends as it experiences a productivity surge, with AI-related exports soaring over 50% year-over-year. This remarkable growth is exemplified by the semiconductor sector, which accounts for 17% of South Korea’s total exports. Analysts predict that South Korea’s significant investments in AI research and development, coupled with an increasing number of AI-related patents, will continue to bolster its leadership in AI adoption in the years to come.
However, the analysts caution that escalating U.S.-China tensions, particularly concerning the semiconductor industry, could pose significant challenges to South Korea’s growth trajectory. Despite efforts to diversify its chip exports beyond China—where over 30% of South Korea’s chip exports were directed in 2023—the implications of geopolitical strain remain a concern. Should relations worsen and the U.S. impose additional trade restrictions on AI-related chip exports to China, this could severely impact South Korea’s memory semiconductor exports.
Moreover, South Korean chip manufacturers rely on China for various components and equipment essential for chip production. Disruption in the supply chain due to geopolitical tensions could hamper the ability of South Korean firms to obtain necessary tools for manufacturing. In addition, the U.S. government’s request for South Korea to limit exports of advanced chipmaking technology to China adds further complexity to the situation. This recommendation is being considered by South Korean officials, who are mindful of the consequences that could follow for major companies operating within China, including industry giants such as Samsung and SK Hynix.
In light of these challenges, the Biden administration is reportedly exploring options to implement an export control measure known as the foreign direct product rule. This would affect countries that continue to trade chipmaking tools and equipment with China, potentially limiting their exports if those goods are produced using U.S. intellectual property.
Despite the potential hurdles, South Korea’s ongoing commitment to AI innovation and development presents a hopeful outlook. By continuing to invest in research and expanding its technological capabilities, South Korea can navigate geopolitical challenges and strengthen its position in the global semiconductor market.
In summary, while South Korea’s economic growth may face headwinds from international relations, its substantial investments in AI and technology promise a robust future, highlighting the resilience and adaptability of its economy in a rapidly changing global landscape.