The AI Boom Paradox: How Semiconductor Growth Shapes Asian Economies
A new Bank of America report reveals a paradox in the Asian AI boom: while tech-heavy economies like Taiwan and South Korea reap massive export gains, they remain highly vulnerable if the trend reverses, unlike China.
South Korea's Kospi index recently recorded its worst week since the 2008 financial crisis, plunging 14.5%, driven by mounting concerns over the massive scale of investments in artificial intelligence and questions regarding their ultimate profitability. Despite extreme stock market volatility, the real economy presents a starkly different picture. A new report by Bank of America (BofA) examines how the AI boom impacts South Korea, Taiwan, and China, highlighting a striking paradox: the economies benefiting the most from the trend may also be the most vulnerable if the momentum reverses.
Surging Exports and Uneven Distribution
According to the report, total exports since the beginning of the year have surged by 57% in South Korea compared to the same period, 44% in Taiwan, and 20% in China. However, the share of the technology industry varies significantly across these nations. Exports of semiconductors, computer products, and telecommunications account for approximately 67% of GDP in Taiwan, compared to 20% in Korea and just 5% in China.
Households are also benefiting from the boom at varying degrees. Retail sales have grown at an annualized rate of nearly 8% in Taiwan, roughly 4% in Korea, and less than 1% in China, on a three-month average. In Taiwan, where households held about 28% of their financial assets in local securities in 2024, stock market gains directly contribute to public wealth. Consequently, Bank of America anticipates two additional interest rate hikes in South Korea, bringing rates up to 3.5%, while sluggish domestic demand in China continues to justify a more accommodative monetary policy.
The Paradox of Vulnerability
This dynamic creates an unexpected paradox. Bank of America notes that China's diversified export mix, excess manufacturing capacity, and relatively low household exposure to tech stocks reduce its direct vulnerability to a potential slowdown in the AI sector. By contrast, the picture in Korea and Taiwan is reversed. The semiconductor boom translates into factory investments, employee bonuses, and tax revenues. Yet these very same growth engines could turn into liabilities in the event of a downturn.
"The anticipated surge in profits for Samsung and SK Hynix is expected to significantly boost tax revenues in South Korea over the coming years," analysts noted in the report.
Nevertheless, a severe slowdown in AI investments is not the baseline scenario for Bank of America. According to the bank's economists, supply chain constraints, high chip prices, and already announced investment plans indicate that the tech boom is likely to persist. As global stock markets attempt to price the future of artificial intelligence, Asian economies are already reaping its rewards—while keeping a wary eye on potential risks.
