South Korea bets on AI to revive growth amid trade pressure

South Korea pledged to prioritize AI investments as economic growth dwindled due to U.S. tariff-related trade headwinds. Under President Lee Myung’s administration, the country’s Finance Ministry promised to unveil H2 2025 AI policy packages for 30 projects as part of the bi-annual policy plan. 

The Ministry pointed out that a massive transformation into AI was the only way to boost the country’s declining economy. The plan includes AI technologies for cars, drones, robots, home appliances, chips, ships, and factories. K-food and K-beauty are among the cultural products and advanced materials that will be integrated with AI tech. The Ministry also mentioned its plans to include tax incentives, financial investments, and regulatory refinements in the packages. 

The South Korean government announced it had set aside $71.56B (100T Won) for investments in strategic sectors. Cryptopolitan also reported on August 8 that the SK government planned to spend $383M on a national AI foundation model to challenge the U.S. and China. In February, the country boasted plans to build the biggest data center by 2028 for $35B, nearly three times OpenAI’s spending on their Stargate project. 

South Korea estimates less than 1% growth by the late 2040s

The government of South Korea said its AI policy plans aimed to propel the country to the world’s top three AI powers, and potentially boost growth despite recording the lowest birthrate. It estimated a potential growth rate of 2%, but projected that it could fall below 1% by the late 2040s. However, the government hopes its new AI policies will help raise the growth rate by up to 3%. 

Government data shows that the country’s economy grew fastest in over a year in Q2 due to rebounding consumer demand and strong technology exports. The Ministry of Finance expects a 0.9% economic growth rate this year for the export-reliant country, a sharp decline from last year’s 2% growth and its January projection of 1.8%. It also expects economic growth to hit 1.8% next year. Exports are forecasted to surge by 0.2% this year, but drop by 0.5% in 2026.

“South Korea is the only country in the world that was liberated from a colony and succeeded in both industrialization and democratization, and that was because we invested in the future.”

–Lee Myung, President of South Korea 

Lee said that, through investment, his country had become an industrial powerhouse since the end of Japanese rule in 1945. He mentioned that the South Korean government planned to increase its spending on research to $25.23 billion (~35.3T Won). Government data shows that Lee’s decision to boost research expenditure by nearly 20% reversed the previous administration’s spending cuts.

Lee promises to make South Korea a big-five soft power  

President Lee promised on August 22 to make South Korea a big-five soft power through government-sponsored investments. He pointed out that his government aimed to grow this market’s value to over $215 billion (~300T Won) and increase exports to $36 billion (~50T Won) by 2030. However, he mentioned that this could not be left to individual companies and pledged that the government would lay a strong foundation, “and it starts now.”

The big five include the categories of South Korean music, dramas, webtoons, food, and beauty products. As mentioned, the government plans to include K-food and K-beauty in its AI policies. However, industry leaders warned that AI threats were among the challenges facing the country’s cultural sector. Former Senior Official of the Korea Communications Commission (KCC), Ko Sam-seog, believes the cultural sector should lead other sectors. Going forward, it should not be regarded as a subsidiary tool for industrial, foreign, or economic policies.

Lee recently appointed Ha Jung-woo as South Korea’s first-ever Chief Secretary for AI Policy. He also disclosed that his office would establish a dedicated AI unit to support his role in guiding the country’s AI initiatives. Lee is reportedly a longtime advocate for AI technology and has consistently emphasized the importance of making AI a national priority. During the last presidential campaign, he pledged $735 billion for a sovereign AI project built on Korean cultural data and language. 

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