"U.S. Faces AI Bubble Test This Year... Manufacturing Powerhouse Korea Has Opportunities in 'Physical AI' [American Economic Association 2026]"

Annual Meeting of the American Economic Association (ASSA) 2026
Interview with Three Professors from the Korea-America Economic Association
Large-Scale AI Investments to Continue Despite Short-Term Volatility
Korea's Opportunity Lies in Physical

"The biggest variables for the U.S. economy this year are policy uncertainties stemming from Trump and the entry into a phase where the performance of artificial intelligence (AI) investments will be tested. Short-term volatility is inevitable, but the medium- to long-term investment trend in AI is likely to continue. As a manufacturing powerhouse, Korea must leverage skilled workers' operational data to secure competitiveness in the field of 'physical AI.'"

Economists from the Korean-American Economic Association who attended the "Annual Meeting of the American Economic Association (ASSA) 2026" held in Philadelphia, USA, from January 3 to 5 (local time), shared this analysis in an interview with Korean reporters on January 5. The Asia Business Daily interviewed Kim Sunghyun, Professor at Sungkyunkwan University and President of the Korean International Finance Association, Jang Yusun, Professor at Indiana State University, and Kyuil Kim, Professor at Michigan State University, to discuss the main topics at the conference, key variables for the U.S. economy this year, and Korea's response strategies.

AI to Shape the U.S. Economy This Year... Large-Scale Investments to Continue

Professor Jang Yusun of Indiana State University (left) and Professor Kim Sunghyun of Sungkyunkwan University (President of the Korean International Finance Association) attended the 'Annual Meeting of the American Economic Association (ASSA) 2026' held in Philadelphia, Pennsylvania, USA, on the 5th (local time) and are interviewing with Korean reporters. Philadelphia=Photo by Kwon Haeyoung

The economists unanimously identified AI as the core variable for the U.S. economy this year. While AI investments are supporting U.S. economic growth, there is also a consensus that their sustainability is now being put to the test.

Professor Kim Sunghyun stated, "Thanks to the expansion of AI investment, the U.S. growth rate is holding up, but the overall economy is excessively dependent on AI. It remains questionable whether returns will justify the investments and whether last year’s stock market rally can continue." He added that if psychological factors come into play, the possibility of an AI bubble bursting cannot be ruled out. Professor Kyuil Kim also predicted, "Skepticism surrounding AI and semiconductors persists, so financial market volatility could increase depending on quarterly corporate earnings."

However, there was consensus that it is unlikely for AI investments in the U.S. to come to a halt. Professor Kyuil Kim explained, "AI is directly linked to national security, so even if corporate investment sentiment weakens, government-level investments will continue. Despite short-term volatility, large-scale investments are likely to persist."

This perception of intersecting short-term uncertainties and medium- to long-term optimism about AI was also a key theme throughout the ASSA conference, where AI was the dominant topic. Professor Kim Sunghyun noted, "This year, there was a significant increase in AI and digital-related sessions at the conference, and the impact of AI on the labor market, policy, and financial markets was discussed extensively." While there was broad agreement on AI’s productivity, discussions became more concrete regarding how to manage side effects such as employment shocks and income inequality. Professor Kyuil Kim cited the example of OpenAI hiring more economists to mitigate the job displacement effects of AI, explaining, "There is a trend toward expanding the AI ecosystem while minimizing shocks to the labor market."

Professor Kyuil Kim of Michigan State University gave an interview to this newspaper on the 2nd ahead of his attendance at the "American Economic Association Annual Meeting (ASSA) 2026," held from the 3rd to the 5th (local time) in Philadelphia, Pennsylvania, USA. Philadelphia ? Photo by Kwon Haeyoung

With the second year of a potential Trump administration approaching, policy uncertainties such as tariff policies and the possibility of a lame-duck period after the midterm elections were also cited as major risk factors for the U.S. economy this year.

‘Physical AI’ as a Key Opportunity for Korea in the AI Era... "Government Intervention Should Be Minimal"

With large-scale AI investments expected to continue, especially in the U.S., the economists also suggested directions for Korea's response. Professor Jang Yusun said, "As AI evolves from a simple tool to an autonomous agent capable of making decisions and taking actions, physical AI that performs actual physical tasks is likely to become the next competitive arena. Korea, with its solid manufacturing base, could become an important testing ground." He suggested that Korea should actively consider strategies to export high-value-added products by integrating skilled workers' operational data, such as welding and assembly, into robot-based physical AI. He emphasized, "While Korea’s strengths lie in its manufacturing ecosystem and skilled workforce, the U.S. lacks such a foundation. This can be leveraged as a structural opportunity for Korea in the AI era."

Caution was also advised regarding the role of government. Professor Kim Sunghyun said, "There is a high risk of failure if the government tries to design the AI market and pick winners. The private sector should be given autonomy as a principle, and government intervention should be minimal and only occur when market side effects become clear." The need to ease labor market rigidity and expand the AI workforce was also highlighted.

Weakening of the Korean Won Not Due to Individual Overseas Investors... "Pay Attention to Possible U.S. Currency Manipulator Designation"

The interview also addressed the weakening of the Korean won, a topic raised by Kenneth Rogoff, a renowned scholar in global finance and currency, during his conversation with Korean reporters. The economists analyzed that the phenomenon is the result of a combination of structural factors, including the interest rate gap between Korea and the U.S., increased domestic liquidity, Korea’s planned investments in the U.S. totaling 350 billion dollars, and a decline in the investment appeal of Korean assets. There was a common view that the influence of individual overseas investors, so-called "Seohak Ants," is limited. Professor Kim Sunghyun emphasized, "Exchange rates are a matter of dollar supply and demand. Rather than blaming specific groups like Seohak Ants, restoring trust in the Korean economy and its assets is the fundamental solution." Professor Kyuil Kim warned that excessive government intervention to defend the exchange rate could increase the likelihood of the U.S. designating Korea as a currency manipulator.

The won-dollar exchange rate is expected to remain in the 1,400 won range this year, as it did last year. Professor Kyuil Kim predicted, "On an annual average, it will hover around 1,440 won, and during the year it could rise to the upper 1,400 won range before returning to the current level by year-end due to government intervention."