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AI chip boom upends Asian economies: Taiwan flies, Korea rises, Japan drifts

Published: 06 May. 2026, 06:00

JIN MIN-JI
[email protected]

A man walks past a board showing numbers of the Taiex Index, center, and other Asian markets at the Taiwan Stock Exchange in Taipei on May 4. [AFP/YONHAP]

[BEHIND THE NUMBERS]

Asia’s economic order is being reshaped in the age of AI, with Korea emerging as a key pivot point in a shifting regional hierarchy. While Korea faces rising pressure from Taiwan, where GDP per capita is projected to increasingly outpace Korea in the years ahead, it is simultaneously closing in on Japan in exports — a longstanding benchmark it once sought to emulate.

Korea is clearly larger than Taiwan in total economic size, supported by a population nearly twice as large and decades of state-led industrialization that produced national champions across industries from semiconductors to autos and steel. But that gap has narrowed markedly in the wake of the recent AI-driven semiconductor boom.

The sharpest divergence lies in GDP per capita. Taiwan overtook Korea last year, and the gap is projected to widen by as much as $10,000 by 2031, according to the International Monetary Fund (IMF)’s April World Economic Outlook. While Korea still leads in total exports, its growth has lagged sharply, rising 3.8 percent last year compared to Taiwan’s 35 percent, according to the World Trade Organization (WTO) data.

But the same AI-driven shift has also pulled Korea closer to Japan on the export front, with the gap narrowing to just under $29 billion last year as Korea’s total exports crossed the $700 billion mark for the first time. Some analysts expect Korea to surpass Japan this year on the back of the ongoing chip boom, with Korea’s exports rising 5.1 percent in the January-March period from the previous quarter.

“The growth gap between Taiwan, Korea and Japan ultimately reflects the extent to which the AI sector accounts for a share of each economy,” said Kang Hyun-ju, a senior research fellow at the Korea Capital Market Institute (KCMI). “Taiwan’s growth reflects an unusually sharp rise in dependence on semiconductors, driven by the AI boom. The same forces are also creating conditions for Korea to overtake Japan in exports — a longstanding benchmark for the Korean economy across key industries such as electronics and automobiles.”

From a distant rival to a looming threat

While Korea and Taiwan have long been grouped as part of the “Asian Miracle” for their rapid growth, Korea’s economy has been significantly larger than Taiwan’s, with GDP still more than double Taiwan's. But despite its greater scale, other economic indicators are increasingly highlighting Taiwan’s more aggressive growth trajectory, which some experts project could solidify into a longer-term trend.
Most notable is real GDP per capita, which measures economic output per person and typically reflects average living standards and productivity. After Taiwan overtook Korea in the metric last year, the IMF projects the gap to widen each year, making a reversal unlikely.

Korea’s GDP per capita is forecast to rise 3.3 percent this year from the previous year to $37,412, compared to Taiwan’s 6.6 percent increase to $42,103. While the IMF expects Korea to cross the $40,000 threshold in 2029, it projects Taiwan’s figure will reach $50,370 in the same year.

“In Taiwan, the semiconductor sector accounts for an outsized share of the economy, with TSMC effectively representing about half of the local equity market,” said Kang from the KCMI. “With a smaller population base and a heavier concentration in semiconductors, these structural dynamics are increasingly seen as a source of divergence in economic performance.”

This development shouldn’t be underestimated in super-aged economies like Korea, where population growth is slowing, and overall expansion is moderating. “In such economies, GDP per capita is becoming especially important relative to aggregate GDP, making the distribution and quality of individual earnings a more meaningful gauge of economic performance than the sheer size of the economy,” Kang added.

Another widening gap is growth momentum. Taiwan’s GDP is projected to expand 7.6 percent this year, following a sharp 8.7 percent surge last year that lifted its total exports by 35 percent year-on-year, according to the Asian Development Bank’s April outlook. By contrast, Korea, whose exports rose just 3.8 percent over the same period, is expected to grow 1.9 percent this year, up 0.2 percentage points from ADB's December estimate, while Japan's GDP is projected to expand 0.7 percent.

While both countries are among the biggest beneficiaries of the AI chip boom, growth rates have diverged: Taiwan is “all in” on chips, unlike Korea, which also has other major export products such as autos and machinery, according to Huh In, an economics professor at the Catholic University of Korea.

A woman walks past a Taiwan Semiconductor Manufacturing Company (TSMC) logo at the Hsinchu Science Park in Hsinchu on July 5, 2023. [AFP/YONHAP]

Chips accounted for 34.8 percent of Taiwan’s exports last year, and about 70 percent when including ICT products linked to the semiconductor supply chain, compared to 24.4 percent in Korea for chips alone, or 32.1 percent when broader electronics and electrical goods such as displays, electric appliances, and wireless communication devices are included.

But Huh pointed out that rapid growth driven by a single industry can leave an economy significantly vulnerable. “A direct comparison with an economy that has reaped outsized gains by concentrating heavily on semiconductors is of limited relevance, given differences in industrial structure and policy priorities.”

He added, “Taiwan has effectively gone all-in on chips, a strategy that differs from Korea’s balanced-growth approach. Such steep, single-sector-driven growth cannot be described as healthy, as it leaves an economy more vulnerable to shocks, particularly given the semiconductor industry’s pronounced cyclicality.”

Closing in on a once-formidable rival

Until 1990, Korea focused heavily on learning from Japan, drawing extensively on its technology and industrial expertise as Korea built up its own manufacturing base. This knowledge transfer helped shape the development of major Korean conglomerates, from what is now the country’s leading electronics group, Samsung Electronics, to the largest steelmaker, Posco, and automaker, Hyundai Motor.

At the time, Japan appeared to be a formidable economy, with a GDP of $3.26 trillion in 1990 compared to Korea’s $292.06 billion, according to the IMF. The gap has narrowed significantly since then, as Japan’s growth has slowed while Korea has expanded on the back of a strong export-driven model. As of last year, Japan’s economy stood at $4.44 trillion, compared to Korea’s $1.87 trillion.

That is most evident in exports, as Korea’s annual exports reached $709.3 billion in 2025, just $29 billion shy of Japan’s, the smallest gap on record, according to data from the Korean government and the WTO. The difference had exceeded $100 billion as recently as 2021, but it narrowed to $85 billion in 2023 and $23.4 billion in 2024. In fact, Korea surpassed Japan four times in monthly exports in 2025, a trend that continues to this year.

Korea’s exports outpaced Japan’s on a cumulative basis in the first quarter, reaching $219.9 billion versus Japan’s $188.8 billion. Korea's exports in April surged 48 percent from a year earlier to $85.89 billion, raising the prospect that full-year shipments could exceed the government’s $740 billion target if the momentum holds, and eventually outpace Japan's to become the world's fifth-largest exporter.

The narrowing gap underscores Japan’s loss of growth momentum. While Japan has faced a range of economic headwinds — from becoming the world's oldest super-aged society to a prolonged period of stagnation following the collapse of its asset price bubble — its inability to keep pace technologically has been another key factor weighing on its performance.

Over the past decades, Korea has steadily expanded its core exports on the back of technological advancement and industrial agility. Japan, by contrast, has seen its edge in key sectors erode, increasingly squeezed out on price competitiveness in global markets. Even Japan’s strengths in semiconductor manufacturing equipment and materials have yet to fully benefit from the recent chip upcycle, as the latest upswing has been largely price-led, reflecting supply constraints, and thereby, muting demand for equipment and materials.

An electronic display board at Woori Bank’s dealing room in central Seoul shows the financial market on May 4. The Kospi surged 5.12 percent on the day to a record high of 6,936.99. [NEWS1]

“Technological leadership does not simply carry forward,” said Kim Yang-paeng, senior research specialist at Korea Institute for Industrial Economics and Trade. “Japan has already lost ground in shipbuilding, displays and steel — industries where Korea and China have advanced rapidly. As Korean and Chinese firms scaled up, Japan fell behind on cost competitiveness, which in turn limited its ability to reinvest in those sectors. Without reinvestment, it inevitably lags in emerging technologies.”

Backed by heavy investment, Samsung Electronics became the world’s largest memory chipmaker while LG Display became the world’s top large-sized organic light-emitting diode panel maker.

But it may be too early for complacency, as Korean industries face mounting competitive pressure from China’s accelerating technological ascent. China’s Baowu Steel Group has overtaken Korea’s Posco to become the world’s largest steelmaker, while BYD has emerged as the world’s largest electric-vehicle maker, underscoring the scale and speed of China’s industrial advance.

“China has already become the global leader in electric vehicles and has overtaken rivals in displays, while its rapid advances in semiconductors suggest the gap in even the most strategically important industry for Korea may continue to close,” Kim added.

BY JIN MIN-JI [[email protected]]