Chips contribute nearly 80% of export growth—Is the South Korean economy “putting all its eggs in the AI basket”？

According to AASTOCKS Financial News APP, driven by continued strong demand for artificial intelligence (AI) infrastructure, South Korea’s exports continued their chip-led surge in August. This robust performance has brought tangible benefits to the fourth-largest economy in Asia, driving its overall export figures to record highs. However, this remarkable growth rate has also prompted concerns about “what comes next.”

Latest data released by the South Korean Ministry of Trade, Industry and Energy shows that exports in August rose 68.7% year-on-year to $98.26 billion, beating market expectations of 62% and setting a new record high. Among these, semiconductor exports soared about 209% year-on-year to $46.65 billion, breaking the record for a single month and accounting for 47.5% of total exports in August.

On the import side, August imports rose 22.5% year-on-year to $63.51 billion. The trade surplus for the month was $34.75 billion, significantly higher than the revised $30.39 billion in July. This marks several consecutive months of positive growth for South Korea’s exports, with the growth rate further accelerating from July’s revised 63.0%.

Chips as the Absolute Engine

Semiconductors were the main driver behind export growth in August. The Ministry of Trade, Industry and Energy noted that large cloud service providers such as Google (GOOGL.US) and Amazon (AMZN.US) expanded capital expenditure, rapidly boosting AI infrastructure demand and becoming the core reason for the surge in chip exports.

Data shows that South Korea’s chip export value in August reached $46.65 billion, higher than July’s $41 billion and June’s $45 billion. Jeff Ng, Head of Asia Macro Strategy at Sumitomo Mitsui Banking Corporation, estimated that semiconductor exports contributed nearly 80% to overall export growth in August.

“Overall export growth was mainly driven by chips, computers, and rising petroleum product prices,” said Ng.

By product category, computer exports jumped fivefold year-on-year, and smartphone exports rose 21%, both showing strong performance. However, traditional manufacturing industries are obviously under pressure. Due to factors including strikes in the auto industry and summer holiday arrangements, automobile exports in August fell by about 30% year-on-year, and ship exports fell by 10%.

The Ministry of Trade, Industry and Energy pointed out that part of the decline in auto exports was due to holidays and partial strikes, but US tariffs and automakers shifting production to US factories are creating more persistent obstacles.

By export destination, South Korea’s exports to both the United States and China showed robust growth in August. Exports to the US rose 89% year-on-year, while exports to China more than doubled. In contrast, exports to the Middle East fell 15%, indicating significant differences in recovery pace among various markets.

This structural divergence is also evident within South Korea’s economy. On one hand, the technology sector represented by semiconductors and computers continues to thrive; on the other, traditional industries like automobiles and shipbuilding and some domestic-demand-related sectors are still under pressure. Moody’s Analytics economist Dave Chia describes this phenomenon as a “dual-speed economy.”

Concerns Behind the High-speed Growth

Despite the impressive export data, the semiconductor industry’s extreme growth rate has led some analysts to focus on potential risks. Chia said: “A gradual slowdown is manageable. But if there is a sudden stall, things would be different, because the Korean economy is already running at two speeds, and the sectors expected to pick up the slack are currently facing pressure.”

He further warned that if demand for chips cools while monetary policy remains in a tightening cycle, then “when the windfall fades, domestic demand may not be strong enough to take over the baton of growth.”

The Bank of Korea raised its benchmark interest rate to 3% in August, marking the second consecutive hike, citing persistently high core inflation. This means that if the chip supercycle reverses ahead of schedule, there may be limited room for monetary policy to mitigate the impact.

However, the Bank of Korea stated in its August monetary policy decision that consumer recovery is gradually accelerating. Data from the Ministry of Trade, Industry and Energy also showed that non-semiconductor exports grew 20% year-on-year in August, indicating that other sectors are not entirely lacking in vitality.

Homin Lee, Senior Macro Strategist at Lombard Odier, believes that if semiconductor momentum moderates and other cyclical sectors perform well, South Korea could still maintain 2% to 3% annual real economic growth.

He also noted that he does not tend to characterize South Korea’s current export structure as “over-reliant” on semiconductors, since there are other cyclical sectors that often perform well when the global economy is broadly improving.

Corporate Sector Remains Optimistic About AI Demand

At the corporate level, South Korea’s two memory chip giants, Samsung Electronics (SSNLF.US) and SK Hynix (SKHY.US), remain optimistic about AI-driven demand. SK Hynix CEO Kwak Noh-Jung said last week that AI-related demand will keep the memory chip market in short supply through the end of this decade. This forecast is two years longer than the prediction Samsung Electronics made in July.

SK Hynix is one of NVIDIA’s (NVDA.US) major suppliers of high-bandwidth memory chips. The company recently broke ground on a $4 billion AI chip plant in Indiana, USA. Kwak Noh-Jung stated that memory chip shortages could last until the end of 2030.

Samsung Electronics and SK Hynix both reported record profits and revenues in the second quarter, and the market widely expects this momentum to continue at least through the end of the year.

Jeff Ng of Sumitomo Mitsui Banking Corporation expects that South Korea’s overall exports will remain in positive territory over the next 12 months, although the growth rate may slow due to base effects and price stabilization.