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South Korea has become a global economic winner as its makers of chips, ships and tanks reap the benefits of a race for AI supremacy and a wave of rearmament. Boom times for strategic sectors including semiconductors and defence manufacturing are rippling through the economy, which grew 3.6 per cent in the first quarter on a year earlier, up from 1.6 per cent growth in the fourth quarter. Exports surged 38 per cent, to a record $220bn.
“Several sectors of the economy are in a sweet spot right now,” said Michael Breen, chief executive of Insight Communications in Seoul, despite the economy’s reliance on imported energy and challenges such as the high cost of living and youth unemployment. “The engine of growth is still very much running.”
Much of the boom has been driven by AI. Sales of memory chips contributed $31.9bn to April’s total export haul of $85.89bn, also a record. Samsung Electronics and SK Hynix, South Korea’s leading chipmakers, have both topped $1tn in market capitalisation and are among the 20 biggest companies globally.
Demand for data centres to house those chips, meanwhile, has created a parallel rush for ultra-high-voltage transformers, which are made by Hyosung Heavy Industries, HD Hyundai Electric and LS Electric. Those companies now have a combined order backlog of Won32tn ($21.3bn), and Hyosung Heavy’s share price has risen more than 50-fold in five years.
Bank of Korea governor Shin Hyun-song last week said booming semiconductor sales would lift 2026 GDP growth by 0.7 percentage points: outweighing the hit from the war in Iran. In shipbuilding, the global industry is increasingly a two-horse race between China and Korea as other countries have lost their competitive edge. This has pushed Washington and its allies to turn to Korea.
Hyundai Heavy Industries, the world’s largest shipbuilder, has received new orders for 16 liquefied natural gas carriers this year, versus seven for the whole of 2025. “We’re continuously using all available space to the point where no room remains,” said a shipyard worker on the island of Geoje-do, near Busan, who asked to remain anonymous. “Our production capacity is running at nearly 100 per cent or more.
We are truly very busy.” South Korea’s three biggest shipbuilders; Samsung Heavy Industries, Hanwha Ocean and Korea Shipbuilding & Offshore Engineering, Hyundai Heavy’s parent group secured contracts worth $19.1bn between January and mid-May, on course to exceed last year’s total of $36.3bn.
The Pentagon in April announced a $1.85bn feasibility study into outsourcing warship design and construction to Korea and Japan; a break with decades of domestic-only production. The decision was driven by a situation the Government Accountability Office described last year as a US shipbuilding industry in “near-total collapse”. “If the US wants to retain its control in the Asia-Pacific region, they need naval shipbuilding and merchant marine shipbuilding. That requires South Korea and Japan, but especially South Korea,” said Patrick Han, a Seoul-based banker involved in infrastructure and defence projects.
Russia’s invasion of Ukraine and growing security concerns in Europe, Asia and the Middle East have also invigorated Korea’s defence export industry. The country’s weapons are often attractive to buyers because they are cheaper than western alternatives and largely free of the delays and use restrictions that often saddle US systems. This year alone, Korea has inked deals with Peru, Norway and the United Arab Emirates, as well as a $6.5bn sale of fighter jets, rockets and tanks to Poland.
The list of sales is still growing: the sector’s export backlog has grown 24 per cent in the past year to Won113.3tn ($75.5bn). Han attributed Korea’s industrial overperformance to the breadth of its chaebols, the family-run conglomerates often criticised for “octopus-tentacled” expansion and tolerance of lossmaking subsidiaries. “There is a joke that conglomerates in Korea make everything from instant noodles to submarines, which is true, but increasingly, you really need scale,” he said. “Keep your presence . . . especially the knowledge, key personnel, engineering and technologies, and find the right model to revitalise them, rather than shutting them down.”
Korea’s softer industries are also booming. The country is second only to France in cosmetics exports, helped by global popularity of Korean pop music and television dramas. Tourist arrivals reached 4.76mn in the first quarter, up 23 per cent from the same period in 2025.
But not everyone is benefiting. While semiconductors are driving much of the manufacturing growth, industries such as steel and petrochemicals are being squeezed by lower-cost Chinese rivals and higher oil prices. Small and medium-sized enterprises are also suffering, weighed down by wage burdens and energy costs.
Many experts fear China’s transformation from cheap, low-end factory floor to high-tech powerhouse poses an existential threat. Korea is already thought to have lost its lead in machinery, batteries, displays and cars. “It is only a matter of time before industries that fail to maintain any technological competitive advantage against China are forced out of the market,” said Kim Young-Han, professor of economics at Sungkyunkwan University. “Korea appears to be trending towards having a comparative disadvantage in almost every sector, except semiconductors.”
But for Han, this “semi-permanent sense of paranoia” has long been Korean industry’s driving impetus. “The moment we stand still, that’s probably the peak of our economy,” he said. “People, I think, inherently understand you have to keep paddling, you have to keep running to move forward.”
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