The Sino-US Technological War: A Shift in the Pattern of South Korea’s Trade

East Asian countries have always been tempted by the profitable market of China, but the importance of the Chinese economy to South Korea seems to be on a decline. According to the Bank of Korea, goods exported from South Korea to China decreased to $122 billion between 2021 and 2022 by 10 per-cent, while goods exported to the United States rose by over 22 per-cent to $139 billion. This marks the first time that the United States overtakes China as the biggest export market of South Korea in nearly 20 years. Such a shift in South Korea’s trade pattern can be ascribed to the economic competition between the eagle and the dragon in the advanced technology war. Their technological war has provided opportunities for South Korea to enhance its business relationships with the United States, while weakening the business prospect in China.

Technology is destined to be the driver of future economic growth. Leading powers have been developing high-tech industries like AI, robotics, biotechnology, and electronics to promote economic development and transformation. China and the United States are no exception. The competition between them is, in fact, particularly fierce because of the escalating tensions between them. To fully develop these high-tech industries and win the technological race, these states will need an essential material, semiconductors. South Korea is an important player in the global semiconductor and advanced chips supply chain. By December 2020, South Korea accounts for 37 per-cent of the production of semiconductor chips with a node size lower than 10 nm. Its two largest manufacturers, Samsung Electronics and SK Hynix, account for 17 per-cent  of the global market share. In 2022, they account for about 50 per-cent of the global market share in NAND flash memory chips and almost 70 per-cent of that in the DRAM segment.

Given that the United States is eager to maintain its advantage in advanced technology development, expanding into the American market is appealing to South Korean manufacturers. The two countries have been each other’s most important allies in managing the stability of the East Asia and Indo-Pacific region. This provides a favorable circumstance for South Korean companies to build stronger trade relations with the United States. Meanwhile, Washington’s ambition to consolidate its leadership in the technological race will also boost the demand for South Korea’s semiconductor and chips, which helps contribute to a greater export of South Korea to the United States.

While South Korea is inclined to export more goods to the United States, the competition can drive China to import fewer goods from South Korea. Admittedly, the Chinese market is a major revenue source for South Korean high-tech giants. The business prospect in China, and Beijing’s eagerness to surpass the United States in the technological race, should drive South Korea to export more goods to China. However, the technology war has caught South Korean manufacturers in the middle between China and the United States. The United States is now implementing export control to suppress China’s access to sensitive technology. The CHIPS Act implemented by Washington does not allow subsidy applicants to engage in certain significant transactions involving expanding semiconductor manufacturing capacity. This limits the export of critical materials and technology from South Korea to China. Fearing the potential retaliation from the United States, South Korean manufacturers are incentivized to avoid over-expanding in the Chinese market and trading sensitive products.

Moreover, under the technological war, American suppression of China encourages the latter to be more self-reliant. Apart from imposing a series of sanctions on Beijing and limiting its access to critical materials, the US is also persuading or pressuring other countries, including South Korea, to side with Washington and not to collaborate with China to develop advanced technology. For example, the United States, South Korea, Japan, and Taiwan have formed the Chip 4 initiative to coordinate policies on supply chain production and research. This has forced China to sharpen its domestic manufacturing capabilities, so as to reduce reliance on foreign technology and promote the development of its own high-tech manufacturing sector. Accordingly, together with the Made in China 2025 strategy released in 2015, China has been making increasing investments to develop its semiconductor, AI, bio-medicine, and other advanced industries. All these could reduce demand for South Korea’s strategic or critical materials.

Ultimately, in the era of the fourth industrial revolution, technological competitions between the leading economic powers appear to be inevitable. As a technological powerhouse, South Korea is also dragged into the technological race and its trade with China and the United States will observe great changes. High-tech manufacturers and relevant industries will therefore have to navigate the changing trade dynamics, so as to prepare themselves to face a further escalation of Sino-US technological war in the future.

The Rise of Nvidia: California’s Second Gold Rush

During a gold rush, sell shovels. Nvidia's success has been likened to the gold rush era, where those who sold the essential tools profited immensely. In this AI gold rush, Nvidia is selling the crucial components required for AI applications. The market for AI chips could reach $60 billion by 2027, with Nvidia already dominating 75 per-cent of the market. The latest H100 processors, optimised for AI architecture, are currently selling at around $40,000 on eBay, further emphasising the market's demand for these cutting-edge chips.

Nvidia, a periphery player in the field of artificial intelligence (AI), has issued a remarkable revenue forecast that far exceeded Wall Street's expectations. While analysts had expected revenues to be $7.2 billion, Nvidia announced a revised forecast of $11 billion bolstered by the rising wave of generative AI systems like ChatGPT. The company has experienced a substantial increase of 27 per-cent in its stock value and is witnessing an unprecedented demand for its products. As a result, Nvidia's total market capitalization has soared to a staggering $960 billion, firmly placing it as one of the most valuable companies in the world just behind the likes of Google, Apple, Saudi Aramco, and Microsoft. On May 30 2023, Nvidia’s market cap hit the $1 trillion mark.

The influence of AI is expanding beyond the tech sector, with financial institutions also embracing its capabilities. JP Morgan, for instance, is developing a ChatGPT-like service that utilises AI to select investments for customers. The company has recently applied for a trademark called IndexGPT, following in the footsteps of other banks like Goldman Sachs and Morgan Stanley, which have been testing AI for internal use. Nvidia's innovative technologies and strategic foresight ensure its pivotal role in revolutionising various industries and pushing the boundaries of artificial intelligence.

To meet the overwhelming demand for its products, Nvidia is significantly increasing its supply. CEO Jen-Hsun Huang has acknowledged the concerns of consumers regarding shortages of Nvidia H100 chips, which are crucial for AI applications. This is due to many of Nvidia's main customers, including consumer internet firms, cloud computing providers, and enterprise clients, rushing to apply generative AI technology to enhance their businesses. While Nvidia's graphics cards were initially targeted at graphics-heavy video games, the company has successfully diversified its consumer base. The launch of generative AI systems like ChatGPT in November has sparked an AI arms race, prompting various industries to adopt these technologies. The widespread adoption has fuelled Nvidia's sales growth and propelled its stock price to achieve the largest one-day increase in a company's value ever recorded.

Nvidia's position in the AI market is solidified by its continuous technological advancements. With the most advanced GPU, networking capabilities, and embedded advanced memory, the company offers a comprehensive solution to fuel any firm’s AI ambitions. Its management team’s foresight has placed Nvidia years ahead of its competition, Intel and AMD. While CPUs developed primarily by Intel and AMD lack the processing power required for AI, Nvidia's GPUs provide the necessary horsepower for AI computing. Nvidia's remarkable revenue forecast and subsequent stock surge signify the company's dominance in the AI market. By capitalising on the growing demand for generative AI systems, Nvidia has positioned itself as a frontrunner, leaving its main competitors behind. As AI continues to shape the future of computing, Nvidia's innovative technologies and strategic foresight ensure its pivotal role in revolutionising various industries and pushing the boundaries of artificial intelligence.