Why Korea holds the key to the U.S.-China AI rivalry

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Why Korea holds the key to the U.S.-China AI rivalry

Published: 28 Jan. 2026, 00:01

Audio report: written by reporters, read by AI

Kim Byung-yeon

The author is a chair professor of economics at Seoul National University.

An AI revolution is underway. In the 18th and 19th centuries, steam engines began to replace human muscle. Today, AI is beginning to replace human cognitive labor, marking the opening phase of a new industrial revolution. Just as Britain completed the First Industrial Revolution and went on to dominate the global order for a century, the trajectory of U.S.–China rivalry will depend on whether the AI revolution widens or reverses the economic gap between the two countries. We stand at a critical historical juncture, and Korea’s future will be decided here as well.

From left, the Atlas humanoid robot, and members of Hyundai Motor labor union stage a protest for wage increase in Ulsan on Sept. 3, 2025. [REUTERS/YONHAP]

Industrial revolutions affect economic growth in three stages. The first is the invention of new technologies and their initial application. Growth accelerates compared to the past, but the increase remains limited. Despite a revolution in mechanization based on steam power, the global economy grew by only about 0.5 percent annually from 1700 to 1820. A recent International Monetary Fund report likewise estimates that AI will raise growth by up to 0.3 percent this year and by about 0.1 to 0.8 percent annually in the medium term. No matter how astonishing a technology may be, it takes time for firms and societies to absorb it fully.

Atlas, a humanoid robot by Hyundai Motor-backed Boston Dynamics, demonstrates working at a factory at the CES 2026 in Las Vegas on Jan. 8. [YONHAP]

The second stage arrives when new technologies are applied across entire industries, driving a sharp rise in growth. Through creative destruction, new technologies are widely adopted and emerging industries replace old ones. As the second stage of the First Industrial Revolution was nearing completion, global growth rates were roughly four times higher than during the first stage. The social costs of adjustment also intensify. Those who accept change survive, those who adapt succeed, and those who fail are left behind.

At this point, the third stage, institutional innovation, becomes decisive. If political, administrative and judicial systems are reformed in flexible and fair ways, growth accelerates. If reform fails, social collapse can follow. Britain succeeded by suppressing corrupt forces, persuading groups resistant to change and building inclusive institutions. It dismantled mercantilism, which sought rents through trade monopolies, and enacted factory laws to protect labor rights. While firmly containing the violence of the Luddite movement, it expanded suffrage and opened the path to labor unions. By contrast, Germany and Russia failed at institutional reform and paid harsh prices in the form of Nazism and socialism.

Which country, the United States or China, will reap greater gains from the AI revolution? In the first stage, the United States has the edge. Breakthrough technologies are often born from pure curiosity and a desire to make the world better. Many young Chinese researchers, however, still carry the legacy of rapid enrichment, aspiring to earn large sums in their 20s and 30s and retire in their 40s. Such a culture may allow catching up, but it makes surpassing others difficult. The United States also holds an advantage in the third stage. China’s rigid political system and high levels of corruption are major obstacles to institutional reform. American politics is troubling, but democracy retains a capacity for self-correction.

In the second stage, however, China holds a decisive advantage. If China develops physical AI and applies it broadly across industry, it can generate widespread growth effects. In that scenario, the growth rate of the United States, where manufacturing is relatively weak, is likely to lag behind China’s.

This is precisely where the United States needs Korea. As a manufacturing powerhouse, Korea can engage in an essential exchange of interests with Washington. If Korea helps advance U.S. manufacturing and the United States supports the strengthening of Korean manufacturing, a complementary alliance can narrow the gap with China during the second stage. If Korea instead deepens manufacturing cooperation with China, the United States will be placed at a severe disadvantage in the race for global leadership. That outcome would also run counter to Korea’s own interests as a manufacturing competitor to China.

A screen reads 'AI in the physical world' as attendees gather during Rivian's first Autonomy and AI Day, showcasing developments in self-driving technology in Palo Alto, California on Dec. 11, 2025. [REUTERS/YONHAP]

What, then, should Korea do? First, it must make clear to U.S. policymakers that strengthening cooperation in Korea–U.S. manufacturing is a matter of vital American national interest. Korea should also explain the need to broaden and secure manufacturing supply chains by bringing in partners such as Japan and Germany. In particular, Korea and Japan, which must invest in the United States under tariff agreements, would benefit from jointly coordinating investment targets and methods with Washington rather than proceeding separately.

Excluding China entirely from AI cooperation would not be wise. There is room to identify cooperative projects in nonmilitary and nongeneral fields such as health care and education, allowing each country to leverage its comparative advantages. Domestically, Korea must strike a balance between sovereign AI and physical AI. If government support tilts too heavily toward sovereign AI, Korea risks losing its strongest asset: advanced manufacturing. Policies are urgently needed to convert the skills and tacit knowledge of an aging skilled workforce into data to train AI systems, combining them with robotics to propel a new manufacturing leap.

Korea has grown into a country capable of exerting real influence on the global order. This is a decisive moment to combine self-reliance rooted in advanced manufacturing with solidarity among allies, and to emerge as a strong nation that wields its power with constructive purpose.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.